When selling a home in California, all Seller as well as their agents must make certain disclosures to prospective Buyers. The best known of these is the Transfer Disclosure Statement and the Seller Property Questionnaire. It is on these forms that Sellers disclose any adverse conditions on the property that might “materially affect it’s value” to a Buyer. Often, Sellers are hesitant about disclosing defects because they fear – often with good cause – that it may make their home unsellable unless the make expensive repairs. However, failure to disclose defects is a sure way to get sued by the Buyer after the sale closes. That’s when Sellers not only get to pay for repairs but also get to pay the Buyer’s legal fees. But how do you handle the issue you can’t fix… the obnoxious neighbor?

First, understand what we’re talking about legally…a Nuisance. California law defines two forms of Nuisance: (1) a Private Nuisance – when some one prevents or disturbs your use or enjoyment of your property such as the shouting or fighting neighbors or barking dog; or (2) a Public Nuisance – when the disturbance affects others as well such as operating a crack house, or the rock band practicing, or the retail home business with lots of traffic…. even Justin Bieber speeding down the street in his Ferrari. The obnoxious neighbor can be both… and if it is a nuisance, then you are required to disclose.

But like so many legal issues, this can be a gray area: Ask yourself these questions:

(1) Is the neighbor’s conduct personal to you? Maybe he thinks you’re the jerk and the problem is a personal one between the two of you. If so, then this might not materially affect the value of the Property for a Buyer and disclosure might not be required.

(2) Does he have the same problems with other people in the neighborhood? If so, then it’s probably not personal to you and it is likely that the Buyer would encounter the same issue. This should be disclosed and explained.

(3) Is this the reason you’re moving? Whether the neighbor problem is a private nuisance or a public nuisance or just a personal battle, if it is substantial enough that it is driving you from the neighborhood, this should be disclosed and explained.

As with all disclosure issues, the general rule remains: Disclose, Disclose, Disclose. The penalty for failing to disclose a nuisance which materially affects the value of your home to a Buyer can be very severe. In the 1998 California case of Shapiro v Sutherland (70 Cal.Rptr.2d 548) the Seller failed to disclose the disputes that he had with a neighbor over several years which had at times caused the Seller to call the police. After the sale, the Buyer had similar experiences, and learned about the Seller’s prior problems. Buyer sued Seller for rescission of the sale (give me my money back) plus attorney fees, court costs, and other damages… and Buyer won everything.

The key here is Disclosure. The Buyer may be so in love with your home and the neighborhood that they might not really care about problems you had. As with every disclosure item, it’s not just checking a box on the TDS stating there is a nuisance, it’s that plus providing an explanation as to why the box was checked. By meeting your Disclosure obligations, the Buyer will have the opportunity to determine whether to check this out more or not… it does not mean that your sale will die.

Lastly, be sure to tell your real estate agent about any such issues and get their input on how to handle this as a disclosure item.

BPE Law has been assisting our clients with their real estate, business, and other legal needs ever since we started doing business. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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As our economy struggles its way through a recovery, real estate is bouncing around in search of stability. Meanwhile, we have been busier than ever and growing to meet increasing demand for our legal services. Today’s Blog will cover where we are at nearly one quarter through 2014.

Anyone watching the real estate market knows that we are in recovery mode. Prices are up, foreclosures are down, and even Washington seems to have stopped fighting over the Budget. But behind these signs, there is still a lot of uncertainty:

1. Home Prices: Six years ago, the market was glutted with foreclosed properties and short sellers trying to unload their upside down homes. According to MDA Dataquick, in 2007, the Sacramento median home price was nearly $400,000. By 2009, that had fallen nearly 50% and by mid-2012 it was down to nearly $175,000.But an emerging investor market fueled by hedge funds such as Blackstone started gobbling up all the low cost properties and this fierce competition kept for sale inventory low. This imbalance between too little inventory and too much demand started driving up-prices and encouraging more owners to put their homes on the market. By mid-2013, the investor priced houses were gone and momentum brought more homes to the market while higher prices and rising interest rates on loans thinned the number of qualified buyers. Today, according to the Sacramento Assn. of Realtors (SAR), active listings are up 87% from 1 year ago and the median sales price is $203,000 – up 62%! On the other hand, closed sales are down 17%, closed short sales are down 65%, and days on the market from listing to sale have increased over 100%. These statistics suggest that the Spring real estate market should be active but pricing may flatten to meet demand.

2. Foreclosures: Without question, the rate of foreclosures have steadily fallen here and nationally as economic recovery and new laws pushing lenders to be more open to short sales and modifications have eased the pressure. However, while the number of homes in the foreclosure process (default through sale) are down 27% from this time last year, new foreclosure starts are up 57%. It is now clear that the courts will not stop lenders from foreclosing and laws cannot compel them to either modify or accept a short sale. So it appears that lenders are now moving to clear out delinquent properties and get what they can from the increased pricing.

3. Short Sales: Here’s the wild card. Short sale inventory is up 62% from this time last year while completed short sales are down 65% from the same period… nearly a 130% shift! It’s not clear why this is happening but here’s three factors I am aware of: 1) Buyers want the certainty of an active sale rather than the uncertainty and long time lines of a short sale; 2) Buyers are frustrated with some Lenders forcing their deal to go trough a price verification process such as auction.com; 3) rising prices are making short sales less attractive to Buyers…and to Lenders.

We’ll have a clearer picture as the 2014 Spring real estate market unfolds. There’s nothing dramatic expected that would change the above trends so more likely than not we’ll be continuing the market recovery as the inventory of upside down properties slowly is resolved. We’ve been saying for years that recovery should take until about 2015-16. That still appears accurate.

BPE Law has been assisting our clients with their real estate, business, and other legal needs ever since we started doing business. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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Originally Published December 2013

At this time every year, reports start coming out about the many new laws taking effect next year.  Here in California, nearly 1,000 new laws will start up in 2014 many of which will directly affect property owners and real estate professionals.

Here are highlights of some of the most important measures and significant changes of which you should be aware.

1.   IRS AND CA EXTEND DEBT FORGIVENESS TAX RELIEF
Since neither Congress nor the CA Legislature passed any extension of Debt Forgiveness Tax Relief beyond its 12/31/13 ending, everyone thought that tax relief was dead. If so, the financial damage from a short sale or foreclosure would become much greater.  But now the IRS and California tax officials have ruled that any short sale of a 1-4 unit residential property in California will be exempt from tax on the unpaid debt. Now, if they would extend this to foreclosures as well, the entire upside-down market could clean up faster.

2.  LENDERS & BORROWERS FACE MAJOR CHANGES WITH NEW LENDING RULES
On January 10, 2014, several new lending Rules will take effect as a result of the Dodd-Frank Wall Street Reform and Protection Act. Here are the key ones to watch:
(1)  Qualified Mortgage (QM) Rule – purpose is to reduce risk in the lending industry by imposing limits on risky loan terms such as interest-only and negative amortization as well as tightening underwriting standards.
(2)   Ability to Repay (ATR) Rule – purpose is to protect consumers from obtaining loans that they cannot afford by requiring documentation and proof of income and assets. While you would think that lenders would do this anyway, the housing bubble and market crash were the result of lenders dropping verifications in order to make more loans.
(3)  Qualified Residential Mortgage (QRM) Rule – Similar to the QM Rule, the purpose of QRM is to improve the quality of loans being sold on the secondary mortgage market.
For a good analysis of these changes, see Brandon Cornett’s article for the Home Buying Institute: New Mortgage Rules and Other Changes Coming in 2014.
 
3. NATIONSTAR AND AUCTION.COM RULES CLARIFIED
One of the most frustrating changes in the real estate market has been the requirement by Nationstar that all short sales seeking its consent must be posted on auction.com  for 3 weeks “to verify that the loan investor has received the best price”. While this practice would appear to violate the contract rights of buyers, sellers, and their real estate agents, California Bureau of Real Estate (BRE) which regulates real estate activities in CA has ruled that this practice does not violate any laws. If a higher bid is received in the auction, the original buyer has an opportunity to top that bid. Otherwise the auction bidder gets the property. California Assn. of Realtors has advised its members to contact Nationstar immediately upon listing a property with a Nationstar loan.

4.  HOME IMPROVEMENTS BECOME MORE COSTLY

Starting January 1st, any improvement or alteration to a single-family home more than 20 years old will trigger a 2009 state law mandating the installation of water-saving toilets, shower heads and faucets. The upcoming rule is the the latest government attempt to improve water conservation. Since the 1990s, new homes have had to include various water-saving features. Over subsequent years, the Legislature has approved laws setting low-flow standards for toilets, faucets and other products. Officials said the upcoming rule will, at relatively low cost, make a huge dent in the states urban water consumption and help the state meet a goal to reduce water use by 20 percent by 2020.

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UNDERSTANDING ADVANCED HEALTH CARE DIRECTIVES

(Originally Published October 2013)

WHAT IS AN ADVANCED HEALTH CARE DIRECTIVE? An Advanced Health Care Directive (AHCD), also called a “Living Will”,  is a document in which you can specify now who you want to make health care decisions for you in the future in the event that you are unable to make these decisions yourself, generally when you’ve become incapacitated. As you may have guessed, this sounds a lot like the Durable Power of Attorney I discussed in last week’s Article and in fact until fairly recently this was called a Durable Power of Attorney for Health Care.  The name was changed because legally powers of attorney die when you do. Yet  the  AHCD also includes post-death instructions such as organ donation, autopsy, and funeral and memorial wishes.

SO WHAT ARE YOU DIRECTING?   Your AHCD directs your designated Agent as well as your medical care providers as to your specific desires when facing a medical decision which you are unable to make for yourself. Although these decisions are very personal, over time many people have reached a common desire that when facing a life-ending medical condition, they do not want to be kept alive only because medical technology can keep the body going even when you are effectively gone. Many people remember the case of Karen Ann Quinlan who has kept alive in a hospital for nearly 10 years even though she was in what is called a “persistive vegitative state”.  Most say they don’t want to live like that.  Yet none of us wants the plug to be pulled before we’re ready to go so with your AHCD you designate your choices of treatment if you every fall into such a condition.

WHAT ARE THE DECISIONS TO BE MADE?   The decisions generally fall into two categories: 1) Pre-death; and 2) Post-death.

1.  Pre-Death Decisions – although the State of California has a basic form for AHCD’s, our forms seek to better clarify the choices to be made. Here’s the typical language:

“I recognize that modern medical technology has made possible the artificial prolongation of my life beyond natural limits. I do not wish to artificially prolong the process of my dying if continued health care will not improve my prognosis for recovery or otherwise enable me to live a productive and/or enjoyable life. Therefore, I do not want efforts made to prolong my life and I do not want life-sustaining treatment to be provided or continued:  (1) if I am in an irreversible coma or persistent vegetative state; or (2) if I am terminally ill and the use of life-sustaining procedures would serve only to artificially delay the moment of my death; or (3) under any other circumstances in which the burdens of the treatment outweigh the expected benefits. In making decisions about life-sustaining treatment under provision (3) above, I want my agent to consider the relief of suffering and quality of remaining life as well as the extent of the possible prolongation of my life. I understand that if there is a conflict between my agent’s decision and this statement, this statement shall take precedence.”

“For purposes of this statement:
A)  “Life-sustaining treatment” means any medical procedure, treatment, intervention, or other measure including artificially or technologically supplied nutrition and hydration that, when administered, will serve principally to prolong the process of dying.
B) “An irreversible coma”, means a coma from which the treating physicians have reasonably concluded I will never regain consciousness.
C) “Persistent vegetative state” means a state of permanent unconsciousness that, to a reasonable degree of medical certainty as determined in accordance with reasonable medical standards by my attending physician and one other physician who has examined me, is characterized by both of the following:
(i)    I am irreversibly unaware of myself and my environment, and
(ii)    There is a total loss of cerebral cortical functioning, resulting in my having no capacity to experience pain or suffering.
D) “Terminal condition” means an irreversible, incurable, and untreatable condition caused by disease, illness, or injury from which, to a reasonable degree of medical certainty as determined in accordance with reasonable medical standards by my attending physician and one other physician who has examined me, both of the following apply:
(i)    There can be no recovery; and
(ii)    Death is likely to occur within a relatively short time if life sustaining treatment is not administered.”

For each of these decisions,  you can either accept the language, reject the language, or modify the language to say something else.  Furthermore, additional provisions in the AHCD allow you to designate that irregardless of what directions you give to the above conditions, pain relief is more important and your Agent and medical providers are to allow you to die as naturally and as painlessly as possible.

2.  Post Death Decisions – deal with the normal decisions that have to be made after anyone passes away.  These typically include:
- Anatomical Gifts
- Autopsy
- Disposition of Remains, ie: cremation or burial
- Arrangements for Funeral or Memorial Service

WHEN DOES THE AHCD TAKE EFFECT?  Like powers of attorney, the AHCD takes effect as soon as the document is signed although the right of the Agent to exercise the powers does not take effect until the occurrence of some event, usually the incapacity of the Principal.

HOW LONG DOES THE AHCD POWERS LAST?  The powers under the AHCD exist as long as necessary to carry-out your wishes both before and after death… or until you revoke the powers.

CONCLUSION
In planning your Estate now, you are demonstrating the foresight and concern that will save your family and survivors time, trouble, money and grief. Our easy-to-follow Estate Planning Worksheet will guide you in assembling all the information you need to get your personal Estate Plan started. We look forward to assisting you and your family in this most important concern. Also please feel free to refer our services to other family members or friends who may not have begun their own estate planning.  If you are ready to get started now, call our office at (916) 966-2260 and schedule an Estate Planning Consultation.

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UNDERSTANDING POWERS OF ATTORNEY

(Originally Published October 2013)

WHAT IS A POWER OF ATTORNEY?
Some times in life, we want to give another person the legal authority to make decisions for us when we cannot make the decision ourselves. The document that is used to do this is called a “Power of Attorney”… essentially authorizing someone to act as our “Agent”.  The person granting this power is called the “Principal”.

WHAT POWERS DOES THIS AGENT HAVE?
Your Agent under a Power of Attorney has as much or as little power as you choose to give them and that generally is determined by why the power is being given. Some forms are called: “Limited or Special Powers of Attorney”.  For example, if you are buying a home and the escrow signing is scheduled but you suddenly have to leave the Country on business, you can designate someone to sign those documents on your behalf.  Other times, the power may be broader and longer lasting. An example of this is a real estate property management agreement where you designate someone to make most of the decisions concerning the property including the handling of your related money. The power of attorney used in Estate planning is very similar and is called a Power of Attorney for Estate Management. This however is typically considered a “General Power of Attorney” and is intended to last as long as the Principal is alive or until it is revoked. This grants the Agent the authority to make all decisions concerning the Principal’s property and financial affairs.

In all such documents you are granting your Agent the power to act as your Fiduciary.  A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. Generally this involves the handing of money or assets of value. A fiduciary is required to exercise the highest duty of care and loyalty and to not put his own personal interests ahead of this of the Principal.

WHEN DOES THE POWER OF ATTORNEY TAKE EFFECT?
Generally powers of attorney take effect as soon as they are signed since they are addressing an immediate need.  However, in Estate Planning, the right of the Agent to exercise the powers generally does not take effect until the occurrence of some event, usually the incapacity of the Principal.   Two forms of this are typical and are often used to accomplish the same purpose: 1) the Durable Power of Attorney which takes effect immediately and continues even if the Principal becomes incapacitated; and 2) the Springing Power of Attorney which takes effect only when the Principal becomes incapacitated.

HOW LONG DO POWERS OF ATTORNEY LAST?
The duration of the powers exist as long as the document creating them provides… or until the Principal dies, whichever comes first.  Generally, this is as long as the powers are needed.  For example, the person traveling would not need the Power of Attorney to continue after the home has been purchased and the property manager would not need the Power of Attorney to continue after the management contract has ended.  In Estate Plans the powers generally last until the Principal either dies or revokes the Powers.

IF I HAVE A TRUST, WHY WOULD I NEED A POWER OF ATTORNEY IN MY ESTATE PLAN?
The Successor Trustee in a Trust has all of the same powers and obligations as the Agent under a Power of attorney, including the fiduciary duty.  The reason for the Power of Attorney is the Estate Plan is the same reason why we have a Pour-Over Will… it fixes a problem the arises if the Trustor forgets to put all of their assets into the Trust.  The Successor Trustee can only control Trust assets; the Agent under the Power of Attorney can only control non-Trust assets.  More importantly, if the Agent under the Power of Attorney discovers there are non-Trust assets, they can transfer those assets into the Trust which is most likely what the Principal would have done.

CONCLUSION
In planning your Estate now, you are demonstrating the foresight and concern that will save your family and survivors time, trouble, money and grief. Our easy-to-follow Estate Planning Worksheet will guide you in assembling all the information you need to get your personal Estate Plan started. We look forward to assisting you and your family in this most important concern. Also please feel free to refer our services to other family members or friends who may not have begun their own estate planning.  If you are ready to get started now, call our office at (916) 966-2260 and schedule an Estate Planning Consultation.

 

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(Originally published Sept. 2013)

UNDERSTANDING WILLS AND TRUSTS

WHAT IS A WILL?
Most of us have heard the term “Will” or “Last Will and Testament” but many don’t know what that exactly means.  A Will is simply a document in which you designate who will get your real and personal property upon your death and who will administer your affairs during the process.  As such, it is a basic building block of estate planning.  If you should die without making such a designation (legally called “intestate”), the laws of the State of California will determine who gets your property regardless of what your unwritten intentions may have been (California does not recognize “oral wills”). All persons related to you through blood or marriage have a claim at law on your estate property including all of your children (natural, adopted, illegitimate, etc.) and their successors if predeceased. Furthermore, if you desire to intentionally omit providing for any child, you must state this intent. In a Will you also designate who should be the Guardian of your minor children.

ADVANTAGES OF A WILL
Creating a Will is a relatively easy matter. You state in writing and in the presence of several witnesses who you want as an administrator and who you want to get your assets when you die. Many low-cost programs and forms are available for this purpose or we can do this for you.

DISADVANTAGES OF A WILL
The biggest disadvantage is that all Wills must be confirmed by a Probate Court.  As I described in last week’s Article, this Probate process is generally expensive, time-consuming, and open to the public to see.  If your objective is to pass your assets on to your heirs and other beneficiaries as intact as possible, the Probate process will take a chunk out of what you are leaving them.

HOW CAN I AVOID THESE COSTS AND DELAYS?
The easiest way to avoid these costs is through the use of a Revocable Living Trust.

WHAT IS A REVOCABLE LIVING TRUST?
A Revocable Living Trust is a legal entity that you create on paper to hold your assets for you. In other words, the Trust owns your real estate, your personal property, and your investments. It is called “revocable” because you can change it or even terminate it at any time during your life. It is called “living” because it is created and operated while you are still alive. And it is called a “Trust” because it holds and manages all of your property for you and your beneficiaries.

DOESN’T THIS MEAN I LOSE CONTROL?   
NO! When you create your Living Trust, you designate yourself as the “Trustee” of the Trust and you have the sole right to manage the Trust’s assets. And, because you are also the beneficiary of the Trust, you continue to use and enjoy your Trust throughout your lifetime just as you did before. Since you own the Trust, you can set up the “rules” such as who will manage your property if you can’t (“Successor Trustees”), who will get those assets you put into the Trust, and when those assets will be distributed. You can in effect continue to control your property after your death. During your life, you can continue to add and remove assets from your Trust, receive any and all income, and you can change any provision. You NEVER lose control.

HOW DOES THIS SAVE ME TIME AND MONEY?
1. Probate Avoidance: Because a Trust is treated as a separate legal entity, when you die the Trust survives. As an individual, if you have properly transferred all your assets into the Trust while you are alive, you then have no estate when you die and therefore there is no need for Probate. The role of the Successor Trustee then is to step into your shoes to manage and distribute your estate just as you have designated… they can’t change your wishes. Once the estate is all distributed, the Trust comes to an end and, since there are no assets remaining in the Trust estate, no Probate is required.

 2. Minimizing Estate Taxes: Through a Trust, you can combine your Estate Tax exemption with that of your spouse to gain the full exemption available. This alone could protect your Estate from huge amounts in federal estate taxes.  Some people think they can avoid the Estate Tax by holding their assets in “Joint tenancy”.  But in reality, all this does is lose the tax exemption of the first spouse to die.

WHAT OTHER BENEFITS WILL A LIVING TRUST BRING ME?
1. Avoid a Conservatorship: If you become incapacitated and cannot manage your financial and health care affairs, someone will have to be authorized to step in and take control. Without proper planning, a Court supervised Conservator will have to be appointed at substantial cost and inconvenience. However, a properly drafted Trust can avoid this by authorizing your Successor Trustee to take control and providing the power for them to act during your incapacity.

2. Avoid Publicity: A Living Trust is a completely private affair and generally no-one can know its contents unless you let them.  In fact if there is an occasion when you have to prove that the Trust really exists – such as when buying or selling a home, getting a loan or insurance, etc. – we create a related document called a “Certification” which gives those third parties the information they need to know while preserving your privacy.

3. Flexibility: As the owner of your Trust, you have complete flexibility in relation to your estate and its distribution after you die. You can provide for all, or certain, of your children. You can provide for all, or certain, of your grandchildren. If you have heirs with “special needs”, you can provide distribution that could take place over many years. Your Trust can also provide for children of prior marriages. Your Trust can even regulate when and how your beneficiaries may be provided for and prevent their creditors and others from attaching their interest in the Trust. The point is, everyone’s needs are different and your Living Trust can meet those demands.

4. Revocable: You can change the terms of your Trust or revoke the entire trust any time you want. The Trust only becomes unchangeable when you die (the new “trust managers” cannot change the terms of your trust).

ARE THERE ANY DISADVANTAGES OF A LIVING TRUST?
The only disadvantage is that you may gain a false sense of security and fail to “fund” the trust, that is to make sure that you change the ownership of your assets from you as an individual to you as a Trustee of your Trust. We handle this for you when the Trust is first setup.

WILL A LIVING TRUST MAXIMIZE MY ESTATE PROTECTION?
All things are not for all people. The same is true of a Living Trust. They are, however, for MOST people. By analyzing the size of your estate now and making reasonable projections as to how large your estate may become, as well as looking at what your specific desires are, we can determine what form of estate planning would best serve you and then custom design an Estate Plan to meet those needs. Additional Documents may be recommended to achieve specific results. These most typically will involve methods of reducing estate taxes. Examples of such documents would include:

- Special Needs Trusts for disabled persons
- Life Insurance Trusts for estate tax coverage
- Charitable Remainder Trusts for estate tax reduction
- Family Limited Partnerships for estate tax reduction
- Special Trusts for business interests

CONCLUSION
In planning your Estate now, you are demonstrating the foresight and concern that will save your family and survivors time, trouble, money and grief. Our easy-to-follow Estate Planning Worksheet will guide you in assembling all the information you need to get your personal Estate Plan started. We look forward to assisting you and your family in this most important concern. Also please feel free to refer our services to other family members or friends who may not have begun their own estate planning.  If you are ready to get started now, call our office at (916) 966-2260 and schedule an Estate Planning Consultation.

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(Originally published Sept. 2013)

What is Estate Planning?
Every one of us has an “Estate” of some kind… a home, maybe some investments, money in the bank, insurance, a business, etc. Estate Planning is simply the process of creating certain documents that will enable you to preserve your Estate and pass it on to your heirs and beneficiaries as intact as possible. Why is this important? Because if you don’t plan ahead, your Estate may get chopped up by the ravages of Probate costs, attorneys fees, estate Taxes, and other avoidable time delays in distributing your property to your heirs. Simply put, it is devising an effective method that will allow as much of your estate as possible to be preserved and passed on to your heirs and beneficiaries, without all of the costs and headaches. And the two biggest dangers are Probate and Estate Taxes.

What is Probate and Why Do You Want to Avoid It?
Probate is simply the legal process by which a Court decides who is going to control and receive your assets when you die.. or even if you are incapacitated. If you have no Estate Plan at all or even if you one have a Will, Probate will be required. The biggest problem with Probate is that it’s expensive, How expensive? Well, it’s virtually impossible to do Probate today without an attorney and those Probate Attorney fees are set by law. They are 4% of the first $100,000; 3% of the next $100,000; 2% of the next $800,000; then a sliding scale after that. Most importantly, the Probate attorney fees are tied to the gross value of your Estate, not the net. So, if all you have is a home worth $400,000, the attorney fees alone would be $11,000 plus court costs and expenses of another $2,500. In contrast, an average estate plan will cost you just $1,500.

Beyond the expense, Probate is very time-consuming and it’s open to the public. The minimum time to Probate and Estate is six months… and often more than a year… time spend creating and signing various Court-required documents and appearing at Court hearings, waiting through the many other cases on the Court’s docket each day. And all of this is open to public viewing by everyone else in the Courtroom and, in many Counties, such as Sacramento, your estate information is available online. Forget about privacy.

Bottom-line, Probate is something you want to avoid.

Why You Should Worry About Estate Taxes?
Currently, there is no California Estate Tax. It’s the Federal Tax we need to worry about. Estate Taxes are charged based upon the size of your Estate after your exemptions. Each of us has a personal exemption from Estate Taxes… at this point in 2013, that exemption is $5 million each. While for most of us, this means we’ll have no tax, the concern is that this could change. Back in 2001, that exemption was only $600,000. Federal law then gradually increased the exemptions through 2009 when the exemption reached $3.5 million. The current exemption was set in 2010 and is already the subject of Congressional challenges. Reductions in the Federal exemption are anticipated in the 2014 Budget battles.

While the current law may provide estate tax-exemption for most people, it certainly does not protect all. I’ve had clients that own businesses or have worked hard all their lives building their investments. Often they have large insurance policies as well which also count as assets for tax purposes. Since Estate Taxes can be up to 55%, there is a significant amount of your estate that can be lost to taxes. And between spouses, it’s easy to waste a tax exemption by failing to do effective Estate Planning… a very costly mistake.

So How is Probate and Estate Taxes Avoided by Estate Planning? Properly drafted Estate Plan documents such as using a Living Trust instead of a Will can enable you to avoid the Probate process entirely and keep the administration of your Estate low cost, fast, and private… and can maximize your Estate Tax exemptions.

What are these Estate Plan documents?
Building an effective estate plan is like putting together a puzzle. There are several pieces to the estate plan puzzle. For most people, these are:
1. Revocable Living Trust
2. Pour-Over Will
3. Power of Attorney for Estate Management
4. Advanced Health Care Directive
What your puzzle should look like when completed will depend on the size of your estate and your specific desires. Just as a puzzle that is missing a piece is not complete, if you leave out pieces of your estate plan, your wishes may not be achieved.

If you are ready to get started now, call our office at 916-966-2260 and schedule an estate planning consultation.

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News has been flying around the Internet based upon a recent IRS letter released by Senator Barbara Boxer and the California Assn. of Realtors stating that they would not be taxing debt forgiveness on short sales. Today, we’ll look at that news and the rationale behind it.

Debt Forgiveness occurs whenever a property is transferred and the lenders are not paid in full... such as in a Short Sale or a Foreclosure. Under our nation’s Federal Tax Code, the IRS considers the amount unpaid as being taxable income (technically called “Cancellation of Debt Income”). In 2007, Congress passed the 2007 Debt Forgiveness Relief Act (the “Act”) which gave an exemption from this tax under certain conditions… primarily if the property was the debtor’s personal residence.  California followed with a similar law.  Throughout 2013, one of the most important topics on the minds of upside-down property owners was whether Congress would extend the Act beyond its 12/31/13 expiration date.  California posed an even greater question since, due to political game playing, CA didn’t even offer the tax relief for 2013!

Significantly, unrelated to the tax issue, on July 15, 2011 California passed a new law commonly called “SB458″ which became CA Code of Civil Procedure Sec. 580(e). This law solely dealt with anti-deficiency liability after short sales and simply said that no lender could have recourse against a borrower after a short sale, ie: it became “non-recourse”. This law will continue operating after 12/31/13.  Although 580(e) had nothing to do with debt forgiveness taxes or the Act, events in 2013 connected the two by raising the question of whether another IRS exemption for “non-recourse” debt might apply.

Realizing that Congress was not moving forward on extending the Act and that California had blocked the tax relief for 2013, last August California Senator Barbara Boxer sent a letter to the IRS asking whether there would be taxable income on a short sale under CA CCP Sec. 580(e).  On September 19th, the IRS sent her a response that stated: “We believe that a homeowner’s obligation under the anti-deficiency provision of section 580e of the CCP would be non-recourse obligation to the extent that, for federal income tax purposes, the homeowner will not have cancellation of indebtedness income. Instead, the homeowner must include the full amount of the non-recourse indebtedness in amount realized”.

This was and is great news and appears to be consistent with other IRS publications, particularly the IRS’s own guide to Cancellation of Debt Income, IRS Publication 4681. Publ. 4681 which identifies that if  the loan was non-recourse, then the entire amount of the debt is treated as the amount realized and may or may not result in capital gain or loss. The IRS reply to Sen. Boxer appears to clarify that, at least as to CA short sales, there should not be debt forgiveness tax.  Further, since both CA 580(e) and the IRS Code will continue in effect after 12/31/13, Californians attempting short sales in 2014 should be able to breathe a sigh of relief knowing that any amount unpaid should be free of either a Judgment risk or a tax risk.

Of even greater benefit to Californians, in December our State Board of Equalization (the State’s IRS) ruled that since they follow Federal law on this, that short sales will similarly be exempt from CA debt forgiveness tax… even ones that closed in 2013!

While we might hope that this ruling will also be extended to foreclosures which also become non-recourse under CA CCP Sec. 580(d), we are all thankful for what we’ve been given and hope that the rising real estate market will lift all upside down owners to at least a break-even position.

If you are facing a possible tax issue because of a 2013 short sale or anticipate one in 2014, be sure to consult your own accountant in advance so that you can know the full impacts of cancellation of debt income on your situation. Remember, there are at least five separate and distinct exemptions to avoid this taxation. At least one may apply to you.

BPE Law has been assisting our clients with their real estate, business, estate planning, and other legal needs ever since we started doing business nearly 20 years ago. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning your estate plans, real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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In a hot real estate market and equally in an uncertain one, a Seller may try to get out of an agreed-upon purchase contract, perhaps to take a better offer. What does a frustrated Buyer or real estate agent do? The answer may be found in the law of Specific Performance, and that is the subject of today’s Article.

Here’s the scenario: The Buyer has finally found the home of their dreams and they and their real estate agent are excited that the Seller has accepted their offer. Suddenly, the agent gets an e-mail from the Seller’s agent: the Seller has found a buyer willing to pay more and is refusing to go forward unless the first Buyer meets or beats the new offer. Sound far-fetched? Not at all. This scenario is played out with great regularity both in residential property sales (including rental properties) as well as commercial and industrial transactions. So what do you do if you are the Buyer or agent facing this situation? The key is to understand the law of Specific Performance.

Specific performance is an Order of a court which requires a party to perform a specific act, usually what is stated in a contract… such as completing the sale agreed to in a real estate purchase and sale agreement. Unlike a lawsuit for money damages for breach of contract (which is what is actually occurring), a lawsuit for Specific Performance is seeking for the Court to force the Seller to perform their obligations under the Contract. As such, this is considered an “equitable remedy” forcing the seller to act fairly towards the Buyer and giving the Buyer the benefit of what they contracted to receive. In fact, if the Seller still refuses to cooperate, the Court can actually complete the sale on the Seller’s behalf. Of course, since this claim arises because the Seller has violated the Contract, the Buyer can generally also recover their attorney fees and costs incurred in bringing this lawsuit.

While specific performance can be in the form of any type of forced action, it is usually used to complete a previously agreed upon real estate transaction where all of the essential terms are contained in a written agreement and signed by both Buyer and Seller. In California, this law is located in CA Civil Code Sections 3384 et seq. which includes certain conditions on when this remedy can be used. For example:

(1) Specific Performance will not be granted if money alone will make the inured party whole. However, real estate is generally considered sufficiently unique to warrant the remedy. Section 3387 states that it is to be presumed that the breach of an agreement to transfer real property cannot be adequately relieved by monetary compensation. In the case of a single-family home which the party seeking performance intends to occupy, this presumption is conclusive. In all other cases, this presumption is a presumption affecting the burden of proof.

(2) The person seeking to enforce the Contract have either signed the Contract themselves or provided some other such as performance - such as under a lease option, or a contract for deed, or making repairs – things which a person would not do unless there was some contract benefit for them to do so. Section 3388 states that a party who has signed a written contract may be compelled specifically to perform it, though the other party has not signed it, if the latter has performed, or offers to perform it on his part, and the case is otherwise proper for enforcing specific performance.

(3) The person seeking to enforce the Contract must have performed all obligations required of them up until the time of the Seller’s breach… they cannot be in default on the Contract and expect the Court to enforce it for their benefit.

There are numerous other conditions and restrictions set forth in the Civil Code which can influence the availability of this remedy but, when the facts are there, this is a very effective tool in the arsenal of real estate buyers and agents. Does it really work? Here’s a real life example, a few years ago my wife and I were buying an REO through an online listing service. We’d filled in and submitted all purchase forms, conducted our inspections, waived contingencies, and had received an e-mail from the Agent that the Seller/Bank had accepted our Offer. Then, 2 days later he e-mailed us that the Bank refused to sign and was going with a higher offer. I said, No Way. Within 3 hours, I had filed a lawsuit for Specific Performance against the Bank and recorded a Notice of Pending Action clouding the property’s title. In this case, the Bank had not signed the Contract but, I alleged that the agent’s e-mail was an effective acceptance that had induced our performance. Faced with this, within hours after we e-mailed them the Complaint, the Bank signed our Contract and we promptly closed escrow on a great investment.

BPE Law has been assisting our clients with their real estate, business, estate planning, and other legal needs ever since we started doing business nearly 20 years ago. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning your estate plans, real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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A real estate broker recently sent me this question on behalf of one of his agents:
“I have a property manager who has an agent selling one of his rentals and she is saying that they can enter a property at anytime they want to do inspections because they served a notice that they can do this anytime in the next 120 days with out any further notice. Can an agent give a blanket notice to a tenant saying that we reserve the right to inspect the property at anytime within the next 120 days? I have never heard of such a notice”.

He is not alone in his confusion. It all relates to California Civil Code Section 1954 also known as the Landlord’s Right to Enter and Tenant’s Right to Privacy. As you can expect these two Rights are often in conflict. Sec. 1954 was enacted in 1975 and was amended several times over the years. But the full scope of the law remains little known. It was created to provide guidance for landlords and in fact the first sentence of the law reads:

(a) A landlord may enter the dwelling unit only in the following cases:”
(1) In case of emergency.
(2) To make necessary or agreed repairs, decorations, alterations or improvements, supply necessary or agreed services, or exhibit the dwelling unit to prospective or actual purchasers, mortgagees, tenants, workers, or contractors or to make an inspection
(3) When the tenant has abandoned or surrendered the premises.
(4) Pursuant to court order

Many agents and landlords are aware that the law allows them to enter the premises upon 24 hours written notice to the tenant to show the property to prospective purchasers, tenants, or to make necessary and agreed upon repairs. This is actually in Sec. 1954(D)(1) which requires the landlord to give the tenant reasonable written notice of intent to enter and only during normal business hours. The Section goes on to define “reasonable” as 24 hours. Of course, the parties can agree to something different.

What is little known is Sec. 1954(D)(2) which reads:
“(2) If the purpose of the entry is to exhibit the dwelling unit to prospective or actual purchasers, the notice may be given orally, in person or by telephone, if the landlord or his or her agent has notified the tenant in writing within 120 days of the oral notice that the property is for sale and that the landlord or agent may contact the tenant orally for the purpose described above. Twenty-four hours is presumed reasonable notice in the absence of evidence to the contrary. The notice shall include the date, approximate time, and purpose of the entry. At the time of entry, the landlord or agent shall leave written evidence of the entry inside the unit.”

Be aware also that Sec. 1954(c) states: “The landlord may not abuse the right of access or use it to harass the tenant.”

So, bottom-line for sellers, agents, and property managers is, once you give the tenant a 120 day notice that the property is for sale, then you may give a 24 hour notice of a showing orally or by phone. If the 120 day notice has not been given, then you must give the tenant a written 24 hour notice before you can enter.

BPE Law has been assisting our clients with their real estate, business, estate planning, and other legal needs ever since we started doing business nearly 20 years ago. We’re active in the communities in which we live and in protecting and expanding our clients’ opportunities for business and real estate ownership … and providing assistance when they’re challenged. If you have questions concerning your estate plans, real estate, business, or any other legal matter, give us a call at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com. Our $200 flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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