ESTATE PLANNING WITH PRIVATE REVERSE MORTGAGES
“THE LEGAL CORNER”
By Sam A. Moak
ESTATE PLANNING WITH PRIVATE REVERSE MORTGAGES
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstance.
I have never been a fan of Reverse Mortgages. Reverse mortgages, usually obtained from financial institutions, allow people who are at least 62 years of age to convert their home equity into cash, which is received by the homeowner either as a lump sum, a line of credit, or monthly payments. The loan becomes due, with interest, when the borrower dies, moves out of the home, sells it, or fails to pay property taxes or homeowners insurance. The end result is often that heirs of the owner sell the house, pay off the loan, and keep the difference.
Since an institution involved in a reverse mortgage is advancing money without knowing for sure when it will be repaid, there are high up-front costs for commercial reverse mortgages. Fees can be as much as 5% of a home’s value, and required mortgage insurance premiums can range from 0.1% for loans with a low payout to 2% for those with a higher payout.
As an alternative to commercial lenders, some families set up private reverse mortgages. A private reverse mortgage is basically a private loan to the homeowner, usually from a family member, that is secured by a mortgage on the senior’s house.
For the senior homeowner, a private reverse mortgage can have these advantages:
The costs of having an attorney set up the mortgage should be reasonable and a lot less than the costs of a conventional reverse mortgage with a bank, and there are no ongoing mortgage insurance costs. Also, the interest rate, set each month by the IRS, should be less than the rate on a commercial mortgage.
Since there is no limit on the percentage of the home equity that can be borrowed, the owner can tap into more of that equity and put farther off the day when he or she has to move for financial reasons.
A private reverse mortgage need not be paid back until the house is sold, leaving open the option of the owner’s moving to a nursing home but keeping the house.
The owner can continue to receive payments on the mortgage if needed to maintain the house or to pay for extra care at a nursing home.
For the lending family members, the arrangement can have these advantages over a reverse mortgage with a financial institution:
The financial benefits for the senior family member carry forward to the whole family, because savings on mortgage costs should translate into a bigger estate ultimately passing on to surviving family members.
The flexibility to tap into more equity in the home could give family members the option to hire more paid caregivers or even to pay themselves for providing such care.
Even though interest rates for private reverse mortgages set by the IRS are pretty low, they still return more than can be earned in money market accounts or certificates of deposit. In other words, it beats having money just sitting in a bank.
There are some cautionary aspects to private reverse mortgages. Lending family members need to anticipate that the money they advance may not come back to them for a long time. It is also prudent to consider that there is some risk that the entire loan may not be paid back, if the ultimate proceeds from the sale of the home are insufficient to pay off the loan, with interest. Of course, these and any other concerns should be fully aired and taken into account when the private reverse mortgage is being contemplated in the first place and when its terms are set. Certain family dynamics may not allow a private reverse mortgage to work either.
If you are thinking of a reverse mortgage as a way to obtain cash or looking for ways to transfer assets in your estate, you should sit down with an attorney familiar with real estate and estate planning to find out what will work best for you.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.
TECHNOLOGY AND OUR “SEASONED” LOVED ONES
“THE LEGAL CORNER”
By Sam A. Moak
Technology and our “Seasoned” Loved Ones
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
There is a common complaint among Baby Boomers when it comes to aging parents and grandparents: It’s hard to keep in touch with them. Most communication among the middle and younger generations now takes place on the computer—e-mail, Facebook, electronic photo-sharing and more. Very rarely do we pick up the phone for a good old-fashioned chat; and, when we do, it’s usually on the go, in the form of a quick call or text message from our cell phones. Unfortunately, where all this technology helps us to be more connected to friends and family who also use these technologies, it may end up leaving our “seasoned” loved ones out of the conversation.
We do not have to leave our non-technological loved ones out. The key to getting these relatives involved in high-tech communication is to look at it from their point of view. For technology to become attractive to grandma and grandpa, we have to get into their heads and understand what would make them think this is fun. The bells and whistles that might attract us are often too counterintuitive for them.
The younger, tech-savvy generations tend to look for high-tech devices that do everything, but that’s not necessarily what’s going to be appealing to grandma or grandpa. Perhaps a single purpose gadget, designed solely for email or sharing photos, would be more appealing to them.
New high-tech devices may be harder for parents or grandparents to use and honestly they can be for me too. However, being able to connect with their loved ones can be a huge motivating factor. Being able to communicate with family makes our elderly parents and grandparents happy, but it also helps keep them safe. Adult children who communicate with their parents on a regular basis are better able to recognize and respond when mom or dad suddenly have trouble caring for themselves.
Many of you may not be fortunate enough to live close to your parents or grandparents and technology can provide a way to keep tabs on them. Technologies exist that allow for the movements of our loved ones to be monitored by sensors and relayed by computer if help is necessary. Studies conducted by the AARP Foundation and the Center for Aging Services Technologies (CAST) of the American Association of Homes and Services for the Aging both show a willingness of seniors to use these technological types of equipment if it allows them to stay in their home. I guess instead of Big Brother Watching it is Son or Daughter.
While these monitoring systems in varying configurations have been used in long-term care and assisted-living communities, their move into private residences is more recent. Some home health agencies are offering them as part of their service.
These new systems go way beyond the simple push-button “I’ve Fallen and I Can’t Get Up” alerts to monitor movements, change in behaviors, and even health status such as blood pressure and weight. Systems vary in cost, monthly fees, and technical assistance. Some you rent, others you buy outright. If you are in an apartment or considering a move in the near future, portability may be an issue to consider as well.
Daily interaction with others, particularly family, and a non-intrusive daily check on your loved one’s well being can greatly increase their quality of life. So, technology can be a great benefit to you and your loved ones, if embraced properly.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.
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ESTATE PLANNING WITH BUSINESS ENTITIES
“THE LEGAL CORNER”
By Sam A. Moak
Estate Planning with Business Entities
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstance.
When people think of estate planning, the first ideas that typically come to mind are of wills, trusts, powers of attorney, and guardianship arrangements. Traditionally, those instruments have been closely associated with estate planning simply because they are legal tools exclusively dedicated to helping people pass on their assets or otherwise ensure that loved ones are cared for.
While the traditional tools work very well at accomplishing their designated tasks, you might be surprised to learn that they are not the only tools available for estate planning. Depending on your particular assets and desires, then the use of a limited partnership, limited liability company, corporation may be right for the situation.
All of the business entities mentioned above are common when a business is owned by different individuals. While the primary purpose for forming one of these business entities is for liability protection, they also provide for a means to manage the business and eventually shift ownership.
Limited partnerships have general and limited partners, the general partner(s) are responsible for management and decision making. The limited partners are investors or owners with no management or decision making authority.
Limited liability companies and corporations have either membership holders or shareholders. Typically the membership/shareholder(s) elect the officers who are responsible for management or decision making. Thus, the membership/shareholder(s) with the greater number of membership interests or shares control.
The interests in all of these forms of business entities are something that can be transferred over time, therefore making a perfect vehicle for parents or grandparents to maintain control over assets owned by the business entity until they pass away or are ready to shift the majority of the ownership over to the next generation for control. An additional benefit is that the family also has liability protection. So, using a family owned ranch/farm for example, if one family member is sued or found liable in some accident, then the assets of the other family members in ranching/farming business with them are not susceptible to being taken. Another benefit is that incidents such as incapacity, death or divorce, can be addressed in the governing documents. This means that should one of these events occur, there is a plan for how the property owned by the business entity is transferred.
If you are thinking of working on your estate plan, then perhaps one of these business entities is right for you. Or maybe you are a candidate for a more traditional plan. In either case, you should sit down with an attorney familiar with traditional plans and business entities to find out what estate plan is best for your needs.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.
DO I HAVE TO PROBATE THIS WILL?
“THE LEGAL CORNER”
By Sam A. Moak
Do I have to Probate this Will?
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
A common question I am asked is what is probate and do I need to probate this Will? Estate administration is the management and settlement of a deceased person’s estate by a personal representative approved by the court. Estate administration does not require a Will. Probate is the formal process of administering a person’s estate when they had a Will. Probate may not be necessary when the decedent’s estate is so small that no action is necessary to distribute the property to the beneficiaries or heirs.
However, probate is required in most other circumstances. In fact in a recent case the court ruled a Will not admitted to probate is not effective for the purpose of proving title to real estate. Ratcliff vs. Polk County Title, Inc., No. 09-04-124-CV, 2004 WL 1925447 (Tex. App.-Beaumont. Aug.31,2004, pet.denied). In this case a title company was sued for defamation after the title company issued a title report (i.e., Commitment) that included a statement that Mrs. Ratcliff, a deceased owner of real property, died intestate. Mr. Elijah Ratcliff, Mrs. Ratcliff’s son and named executor in Mrs. Ratcliff’s Will, sued the title company on the grounds that Mrs. Ratcliff did, in fact, have a Will and, therefore, the title report was defamatory. The District Court rejected Mr. Ratcliff’s theory. The Appellate Court affirmed the District Court’s ruling and pointed out that although Mr. Ratcliff had previously filed an application to probate Mrs. Ratcliff’s Will, the Will was never presented for action in the Court. Citing Texas Probate Code Section 94, the Appellate Court ruled that until a Will has been admitted to probate, it is not effective for the purpose of proving title to real property; thus, in that context, the title report was not defamatory.
In Texas, there are several different methods of administering an estate, some of the more common are Independent Administration, Probating the Will as a Muniment of Title, filing a Small Estate Affidavit, and filing an Informal Family Settlement.
If the decedent owned real property at their death, then something must be done to properly transfer the property. Usually this is not discovered until the family of the decedent decides to use, sell, or partition the property. It could also arise if there is a dispute as to payment of expenses or taxes on the property. Without a Will this process can be complicated, involve contacting many heirs, and take a great deal of time.
Please note there are limitations as to which form of probate may be used depending on the situation. Therefore, check with your attorney to decide which method of estate administration is right in your particular circumstance. It could save you time and money.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.
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THE NIGHT BEFORE CHRISTMAS, LEGALLY SPEAKING
“THE LEGAL CORNER”
By Sam A. Moak
THE NIGHT BEFORE CHRISTMAS, LEGALLY SPEAKING
The information in this column is not intended as legal advice but to provide a smile during this holiday season. Any readers with a legal problem should lighten up this week, life is precious, so enjoy your family and friends now and join the real world after January 2, 2012.
It is time again for another great Christmas tradition. So, gather your parties around the fire (or simulated fireplace built by the Amish), whether plaintiff or defendant, ad litem, guardian or children (natural born and adopted), to hear The Night Before Christmas, Legally Speaking.
Whereas, on or about the night prior to Christmas, there did occur at a certain improved piece of real property (hereinafter “the House”), a general lack of stirring by all creatures therein, including, but not limited to, a mouse.
A variety of foot apparel, e.g. stockings, socks, etc., had been affixed by and around the chimney in said House in the hope and/or belief that St. Nick a/k/a St. Nicholas a/k/a Santa Claus (hereinafter “Claus”) would arrive sometime thereafter.
The minor residents, i.e. the children, of the aforementioned House were located in their individual beds and were engaged in nocturnal hallucinations, i.e. dreams, wherein visions of confectionery treats, including, but not limited to, candies, nuts and/or sugar plums, did dance, cavort and otherwise appear in said dreams.
Whereupon the party of the first part (sometimes hereinafter referred to as “I”), being the joint-owner in fee simple of the House with the party of the second part (hereinafter “Mamma”), and said Mamma had retired for a sustained period of sleep. (At such time, the parties were clad in various forms of headgear, e.g. kerchief and cap.)
Suddenly, and without prior notice and warning, there did occur upon the unimproved real property adjacent and appurtenant to said House, i.e. the lawn, a certain disruption of unknown nature, cause and/or circumstance. The party of the first part did immediately rush to a window in the House to investigate the cause of such disturbance.
At that time, the party of the first part did observe, with some degree of wonder and/or disbelief, a miniature sleigh (hereinafter “the Vehicle”), being pulled and/or drawn very rapidly through the air by approximately eight (8) reindeer. The driver of the Vehicle appeared to be and in fact was, the previously referenced Claus.
Said Claus was providing specific direction, instruction and guidance to the approximately eight (8) reindeer and specifically identified the animal co-conspirators by name: Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donner and Blitzen (hereinafter “the Deer”). (Upon information and belief, it is further asserted that an additional co-conspirator named “Rudolph” may have been involved.)
The party of the first part witnessed Claus, the Vehicle and the Deer intentionally and willfully trespass upon the roofs of several residences located adjacent to and in the vicinity of the House, and noted that the Vehicle was heavily laden with packages, toys and other items of unknown origin or nature.
Suddenly, without prior invitation or permission, either express or implied, the Vehicle arrived at the House, and Claus entered said House via the chimney.
Said Claus was clad in a red fur suit, which was partially covered with residue from the chimney, and he carried a large sack containing a portion of the aforementioned packages, toys, and other unknown items. He was smoking what appeared to be tobacco in a small pipe in blatant violation of local ordinances and health regulations.
Claus did not speak, but immediately began to fill the stockings of the minor children, which hung adjacent to the chimney, with toys and other small gifts (Said items did not, however, constitute “gifts” to said minors pursuant to the applicable provisions of the Internal Revenue Code (“I.R.C.”)
Upon completion of such task, Claus touched the side of his nose and flew, rose and/or ascended up the chimney of the House to the roof where the Vehicle and Deer waited and/or served as “lookouts.”
Claus immediately departed for an unknown destination. However, prior to the departure of the Vehicle, Deer and Claus from said House, the party of the first part did hear Claus state and/or exclaim:
“Merry Christmas to all and to all a good night!”
Or words to that effect.
Respectfully Submitted,
The Grinch, Esquire
I wish I could give the original author credit but he is unknown (although a certain family member has always tried to take credit). MERRY CHRISTmas EVERYBODY!!!
Sam A. Moak is and attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.
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