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Real Estate

Monday, January 23, 2017

Do I need an attorney if I am buying a home?



Buying a home can be an exciting experience, but the process can be complicated. While some homebuyers may think hiring an attorney will be too expensive, not having proper legal representation can be even more costly. Although real estate agents typically bring buyers and sellers together, a
highly skilled attorney can perform critical due diligence, anticipate problems, and be your advocate at the closing table.

It's often been said that real estate is all about the price and "location, location, location," but there are a number of factors to consider such as purchase and sales contracts, home inspections, title issues as well as arranging for financing. An experienced real estate attorney who knows the local housing market can help a buyer navigate these issues and protect his or her investment.
Read more . . .


Monday, November 21, 2016

How to calculate estate tax

In order to predict how much your estate will have to pay in taxes, one must first determine the value of the estate. To determine this, many assets might have to be appraised at fair market value. The estate includes all assets including real estate, cash, securities, stocks, bonds, business interests, loans receivable, furnishings, jewelry, and other valuables.

Once your net worth is established, you can subtract liabilities like mortgages, credit cards, other legitimate debts, funeral expenses, medical bills, and the administrative cost to settle your estate including attorney, accounting and appraisal fees, storage and shipping fees, insurances, and court fees. The administrative expenses will likely total roughly 5% of the total estate. Any assets that is bequeathed to charity through a trust escapes taxation, and the value of those assets must be subtracted from the total. Any assets transferred to a surviving spouse are not subject to taxation as long as your spouse is a US citizen.

If the net worth of an estate is less than the Federal and state exemptions, no taxes must be paid. However, the value of assets over the exemptions will be taxed. The amount over the exemptions is referred to as the taxable estate. A testator’s assets are taxed by the state in which the will is probated. Taxes paid by the estate to the state may be deducted for Federal tax purposes. The Federal exemption was $5.43 million in 2015 and is slated to increase in 2016. The top Federal estate tax rate in 2015 was 40%.

If an estate earns money while it is being administered and distributed, for example, if real estate is rented or businesses continue to operate, it will be necessary for the estate to complete a tax return and pay taxes on the income it receives. The net income of the estate can be added to the taxable portion of the estate if it is over the federal or state exemption. It is important to be aware that the laws surrounding estate taxes change frequently and require seasoned professionals to navigate, and to notify you if changes in the laws will affect your estate plan. 


Monday, June 27, 2016

Commercial Lease Disputes

Sometimes a business grows more rapidly than expected and its leased space is no longer large enough. Other times a business finds itself losing money and unable to pay rent. In those instances, it is the commercial tenant that desires to break its lease. There are times, however, when a commercial landlord seeks to break a lease and even threatens eviction for reasons that may lack merit.

A commercial lease is basically a contract that establishes a relationship between the parties and outlines the respective rights and obligations of each. These documents can be confusing and complex. Resolving a commercial lease dispute often involves business, contract and real estate laws.

Unlike residential leases, where the law heavily favors tenants, in the commercial world, the law tends to be more even-handed. The terms of the lease (even if all you have is an oral agreement) are most often going to be what governs the outcome of the dispute. This reflects the view that both parties involved in commercial lease agreements are sophisticated business entities that can protect their interests.

Since the terms of the lease are most likely going to govern if you file a lawsuit and take your dispute to court, it is essential that anyone evaluating your case examines your lease in depth. Even if an out-of-court settlement is negotiated, familiarity with your particular lease agreement is crucial for anyone advising you. Many commercial leases contain a dispute resolution clause that might require mediation or arbitration. These options can often lead to a resolution in less time and with less expense than traditional litigation.

Assessing damages and amassing the means to prove those damages is another important component to handling a commercial lease dispute. Typically, monetary damages are sought. There might be a clause in the lease regarding attorneys' fees. Again, it is vital that a competent and informed review of your particular lease is made to properly guide your case.

Contact an experienced business law attorney today to discuss your commercial lease dispute and learn what legal options are available.

 


Monday, April 25, 2016

Why shouldn't I use a form from the internet for my will?

In this computer age, when so many tasks are accomplished via the internet -- including banking, shopping, and important business communications -- it may seem logical to turn to the internet when creating a legal document such as a will . Certainly, there are several websites advertising how easy and inexpensive it is to do this. Nonetheless, most of us know that, while the internet can be a wonderful tool, it also contains a tremendous amount of erroneous, misleading, and even dangerous information.

In most cases, as with so many do-it-yourself projects, creating a will most often ends up being a more efficient, less expensive process if you engage the services of a qualified attorney.  Just as most of us are not equipped to do our own plumbing repairs or automotive repairs, most of us do not have the background or experience to create our own legal documents, even with the help of written directions.

Situations that Require an Attorney for Will Creation

 In certain cases, the need for an estate planning attorney is inarguable. These include situations in which:

  • Your estate is large enough to make estate planning guidance necessary
  • You want to disinherit your legal spouse
  • You have concerns that someone may contest your will
  • You worry that someone will claim your mind wasn't sound at the signing

Mistakes and Omissions 

It has always been possible to write a will all by yourself, even before the advent of the typewriter, let alone the computer.  Such a document, however, is unlikely to deal with the complexities of modern life.  Many estate planning attorneys have seen, and often been asked to repair, wills that have mistakes or significant omissions. These experts have also become aware of situations in which the survivors of the deceased wind up in court, spending thousands of dollars to contest ambiguously worded or incomplete wills. Without legal guidance from a competent estate planning attorney, creating a "boxtop" will can result in tremendous financial and emotional risk.

Evidence that Online Wills Are Not Foolproof

Evidence that many other complications can arise when an individual creates a will using generalized online directions can be found in the following facts: 

  • Each state has its own rules (e.g. requiring differing numbers of disinterested party signatures)
  • Even uncontested wills can remain in probate if not executed in an exacting fashion
  • Estate planning attorneys find legal software programs inadequate
  • Even legal websites themselves recommend bringing in an attorney in all but the very simplest cases
  • Some legal websites provide inexpensive monthly legal consultations with attorneys to protect their client and themselves

Areas that Frequently Cause Problems 

Self-constructed wills often become problematic when the testator:

  • Names an executor who has no financial or legal knowledge
  • Leaves a bequest to a pet  (legally, you must leave the bequest to an appointed caretaker)
  • Puts conditions on payouts to an that are difficult, or impossible, to enforce
  • Makes unusual end-of-life decisions or puts living will information into the will
  • Designates guardians for children, but neglects to name successor guardians
  • Neglects to coordinate beneficiary designations where, for example, the will and  insurance policy designations contradict one another
  • Leaves funeral instructions into the will since the document will most likely not be read until after the funeral has taken place
  • Leaves inexact or ambiguous instructions dealing with blended families
  • Neglects to mention small items in the will which, though of small financial value, are meaningful to loved ones and may cause contention

In order to ensure that you leave your assets in the hands of those you wish, and to avoid leaving your loved ones with bitter disputes and expensive probate costs, it  is always wise to consult with an experienced estate planning attorney when making a will.  In this area, as in so many others, it is best, and safest, to make use of those with expertise in the field.


Monday, September 7, 2015

Would transferring your home to your children help avoid estate taxes?

Before transferring your home to your children, there are several issues that should be considered. Some are tax-related issues and some are none-tax issues that can have grave consequences on your livelihood. 

The first thing to keep in mind is that the current federal estate tax exemption is currently over $5 million and thus it is likely that you may not have an estate tax issue anyway. If you are married you and your spouse can double that exemption to over $10 million. So, make sure the federal estate tax is truly an issue for you before proceeding.

Second, if you gift the home to your kids now they will legally be the owners. If they get sued or divorced, a creditor or an ex- in-law may end up with an interest in the house and could evict you. Also, if a child dies before you, that child’s interest may pass to his or her spouse or child who may want the house sold so they can simply get their money.

Third, if you give the kids the house now, their income tax basis will be the same as yours is (the value at which you purchased it) and thus when the house is later sold they may have to pay a significant capital gains tax on the difference. On the other hand if you pass it to them at death their basis gets stepped-up to the value of the home at your death, which will reduce or eliminate the capital gains tax the children will pay.

Fourth, if you gift the house now you likely will lose some property tax exemptions such as the homestead exemption because that exemption is normally only available for owner-occupied homes.

Fifth, you will still have to report the gift on a gift tax return and the value of the home will reduce your estate tax exemption available at death, though any future appreciation will be removed from your taxable estate. 

Finally, there may be more efficient ways to do this through the use of a special qualified personal residence trust.  Given the multitude of tax and practical issues involved, it would be best to seek the advice of an estate planning attorney before making any transfers of your property.


Monday, August 17, 2015

Overview of the Ways to Hold Title to Property

You are purchasing a home, and the escrow officer asks, “How do you want to hold title to the property?” In the context of your overall home purchase, this may seem like a small, inconsequential detail; however nothing could be further from the truth. A property can be owned by the same people, yet the manner in which title is held can drastically affect each owner’s rights during their lifetime and upon their death. Below is an overview of the common ways to hold title to real estate:

Tenancy in Common
Tenants in common are two or more owners, who may own equal or unequal percentages of the property as specified on the deed. Any co-owner may transfer his or her interest in the property to another individual. Upon a co-owner’s death, his or her interest in the property passes to the heirs or beneficiaries of that co-owner; the remaining co-owners retain their same percentage of ownership. Transferring property upon the death of a co-tenant requires a probate proceeding.

Tenancy in common is generally appropriate when the co-owners want to leave their share of the property to someone other than the other co-tenants, or want to own the property in unequal shares.

Joint Tenancy
Joint tenants are two or more owners who must own equal shares of the property. Upon a co-owner’s death, the decedent’s share of the property transfers to the surviving joint tenants, not his or her heirs or beneficiaries. Transferring property upon the death of a joint tenant does not require a probate proceeding, but will require certain forms to be filed and a new deed to be recorded.

Joint tenancy is generally favored when owners want the property to transfer automatically to the remaining co-owners upon death, and want to own the property in equal shares.

Living Trusts
The above methods of taking title apply to properties with multiple owners. However, even sole owners, for whom the above methods are inapplicable, face an important choice when purchasing property. Whether a sole owner, or multiple co-owners, everyone has the option of holding title through a living trust, which avoids probate upon the property owner’s death. Once your living trust is established, the property can be transferred to you, as trustee of the living trust. The trust document names the successor trustee, who will manage your affairs upon your death, and beneficiaries who will receive the property. With a living trust, the property can be transferred to your beneficiaries quickly and economically, by avoiding the probate courts altogether. Because you remain as trustee of your living trust during your lifetime, you retain sole control of your property.

How you hold title has lasting ramifications on you, your family and the co-owners of the property. Title transfers can affect property taxes, capital gains taxes and estate taxes. If the property is not titled in such a way that probate can be avoided, your heirs will be subject to a lengthy, costly, and very public probate court proceeding. By consulting an experienced real estate attorney, you can ensure your rights – and those of your loved ones – are fully protected.
 


Friday, July 17, 2015

Top 3 Real Estate Tips for Small Businesses

The only real estate transaction most small businesses engage in is to enter into a lease for commercial space. Whether you are considering office, manufacturing or retail space, the following three tips will help you navigate the negotiation process so you can avoid costly mistakes.

 

“Base Rent” is Not the Only Rent You Will Pay

Most prospective tenants focus their negotiation efforts on the “base rent,” the fixed monthly amount you will pay under the lease agreement. You may have negotiated a terrific deal on the base rent, but the transaction may not be the best value once other charges are factored in. For example, many commercial lease agreements are “triple net,” meaning that the tenant must also pay for insurance, taxes and other operating expenses. When negotiating “triple net,” ensure you aren't being charged for expenses that do not benefit your space, and that you are paying an amount that is in proportion to the space you utilize in the building. Another provision to watch for is tenant's responsibility to also pay a pro rata share of increases in real estate taxes. 

 

There’s No Such Thing as a “Form Lease”

Most commercial property owners and managers offer prospective tenants a pre-printed lease containing your name and various terms. They present these documents often with a rider, and adamantly explain that it is the landlord’s “typical form lease.” This, however, does not mean you cannot negotiate. Review every provision in the agreement, bearing in mind that all terms are open for discussion and negotiation. Pay particular attention to the specific needs of your business that are not addressed in the “form lease.”

 

Note the Notice Requirements

Your lease agreement may contain many provisions that require you to send notices to the landlord under various circumstances. For example, if you wish to renew or terminate your lease at the end of the term, you will likely owe a notice to the landlord to that effect, and it may be due much earlier than you think – sometimes up to a year or more. Prepare a summary of the key notice requirements contained in your lease agreement, along with the due dates, and add key dates to your calendar to ensure you comply with all notice requirements and do not forfeit any rights under your lease agreement.

 


Monday, April 20, 2015

The Risks of Tenant-in-Common Investments

Historically, tenant in common (TIC) projects were owned by a relatively small group of investors who knew each other, such as long-time friends, business partners or family members. Strategies to maximize tax savings and preserve equity typically guided investors to this type of structure, rather than creating a limited liability company or partnership to own the property.

In the late 1990s, real estate sales in the form of tax-deferred 1031 exchanges created a new industry. Promoters began soliciting and pooling funds from investors to purchase real estate. Participation in the pool helped investors find replacement property to guarantee their capital gains tax deferment continued.

In 2002, the IRS clarified when this type of pooling is considered a partnership interest as opposed to a TIC interest, a critical distinction for investors using funds from a 1031 exchange transaction. Following that, investments in TIC interests grew considerably due to the numerous advantages. For those who needed a place to invest their 1031 exchange funds quickly, TIC interests provide a relatively simple way to ensure the funds are spent within 180 days of the sale of the previous property, without the hassle of researching, investigating, negotiating and financing a property in less than six months. TIC investors do not have to burden themselves with the day-to-day management of their investment property. Finally, TIC investors can pool their resources to purchase fractional shares of investment-grade property which would otherwise be out of reach.

With all of its advantages, the TIC interest also carries its share of risks. For example, many TIC promoters charged fees that were excessive, or sold the property to the investors for more than it was worth. If property values decline or purchase loans mature, it may be difficult to refinance, forcing the property into foreclosure and taking the entire investment with it.

Other promoters failed to maintain reserve funds separate for each property. If a promoter filed for bankruptcy and did not properly use the reserve funds, TIC investors were left with no recourse and were forced to cover the reserves out of their own pockets or risk losing their investment.

Further risks are caused by the investors themselves and the nature of their relationship to one another – or lack thereof. Owners of TIC typically do not know each other. Decisions regarding TIC governance often require unanimous agreement by all owners, and just one objection can grind the action to a halt. When owners don’t know each other, or are spread across many states, it can be difficult to communicate and obtain a unanimous agreement.

Despite the risks, TIC interests can still be a good place to park your money – but you must be a cautious, diligent purchaser. Visit the property, seek information from sources other than the promoter, and carefully review the past and projected financial data.
 


Monday, January 26, 2015

Negotiating a Commercial Lease? Be Sure to Address These Issues

When it comes time for your business to move into a new commercial space, make sure you consider the terms of your lease agreement from both business and legal perspectives.  While there are some common terms and clauses in many commercial leases, many landlords and property managers incorporate complicated and sometimes unusual terms and conditions.   As you review your commercial lease, pay special attention to the following issues which can greatly affect your legal rights and obligations.

The Lease Commencement Date
Commercial leases typically will provide a rent commencement date, which may be the same as the lease commencement date. Or not. If the landlord is performing improvements to ready the space for your arrival, a specific date for the commencement of rent payments could become a problem if that date arrives and you do not yet have possession of the premises because the landlord’s contractors are still working in your space. Nobody wants to be on the hook for rent payments for a space that cannot yet be occupied. A better approach is to avoid including in the lease a specific date for commencement, and instead state that the commencement date will be the date the landlord actually delivers possession of the premises to you. Alternatively, you can negotiate a provision that triggers penalties for the landlord or additional benefits for you, should the property not be available to you on the rent commencement date.

Lease Renewals
Your initial lease term will likely be a period of three to five years, or perhaps longer. Locking in long terms benefits the landlord, but can be off-putting for a tenant. Instead, you may be able to negotiate a shorter initial term, with the option to extend at a later date.  This will afford you the right, but not the obligation to continue with the lease for an additional period of years.   Be sure that any notice required to terminate the lease or exercise your option to extend at the end of the initial lease term is clear and not subject to an unfavorable interpretation.

Subletting and Assignment
If you are locked into a long-term lease, you will likely want to preserve some flexibility in the event you outgrow the space or need to vacate the premises for other reasons. An assignment transfers all rights and responsibilities to the new tenant, whereas a sublease leaves you, the original tenant, ultimately responsible for the payments due under the original lease agreement. Tenants generally want to negotiate the right to assign the lease to another business, while landlords typically prefer a provision allowing for a sublease agreement.

Subordination and Non-disturbance Rights
What if the landlord fails to comply with the terms of the lease? If a lender forecloses on your landlord, your commercial lease agreement could be at risk because the landlord’s mortgage agreement can supersede your lease. If the property you are negotiating to rent is subject to claims that will be superior to your lease agreement, consider negotiating a “nondisturbance agreement” stating that if a superior rights holder forecloses the property, your lease agreement will be recognized and honored as long as you fulfill your obligations according to the lease.


Monday, December 15, 2014

Are You Bound by the Terms of a Real Property Letter of Intent?

Complex commercial real estate transactions typically involve a back-and-forth negotiation of numerous terms of the agreement, a process which does not occur overnight. Accordingly, parties to a real estate purchase or lease transaction generally first execute a letter of intent (LOI), which documents the parties’ intent to proceed with the negotiation of a full contract. The LOI includes the essential terms of the agreement, such as closing date and purchase price, or lease term and rate. However, detailed terms and conditions are reserved for the final, formal lease agreement or purchase contract.

The LOI, with its brief description of only the most basic, essential terms, is not intended to be a binding contract.  However, if it is not properly drafted, the parties could find themselves locked into a binding LOI. For example, the existence of elements required in an enforceable contract, such as property description, price, closing date and payment terms, without expressly declaring parties’ intent that it be non-binding, could constitute it as a valid contract.

While parties who enter into an LOI generally intend to consummate the transaction, if the LOI is deemed enforceable as a stand-alone contract, both parties may be subject to undesirable consequences. For example, the LOI lacks essential contract terms such as indemnity clauses, warranties, financing arrangements, or any other detailed terms necessary to protect one or both parties. To ensure the LOI serves its intended purpose, it must contain a specific provision that states the LOI is intended to be non-binding until such time a final agreement is executed by the parties.

What if you want parts of the LOI to be binding, regardless of whether the deal is finalized? Perhaps buyers and tenants want an enforceable provision stating that the seller or landlord will not offer to sell or lease the property to others while the parties are in negotiations. A hybrid LOI can be drafted to ensure the negotiations and final terms are kept confidential until a final agreement is executed. Just as with the provisions stating the LOI is intended to be non-binding, the provisions that are intended to be binding must be carefully drafted to ensure they are enforceable and do not pose unintended consequences for other provisions within the document. A hybrid letter of intent can be a very effective tool in facilitating the purchase or lease of commercial real estate, but care must be taken to ensure it is drafted so that it serves its intended purpose.  


Wednesday, July 24, 2013

Coordinating Property Ownership and Your Estate Plan

Coordinating Property Ownership and Your Estate Plan

When planning your estate, you must consider how you hold title to your real and personal property. The title and your designated beneficiaries will control how your real estate, bank accounts, retirement accounts, vehicles and investments are distributed upon your death, regardless of whether there is a will or trust in place and potentially with a result that you never intended.

One of the most important steps in establishing your estate plan is transferring title to your assets. If you have created a living trust, it is absolutely useless if you fail to transfer the title on your accounts, real estate or other property into the trust. Unless the assets are formally transferred into your living trust, they will not be subject to the terms of the trust and will be subject to probate.

Even if you don’t have a living trust, how you hold title to your property can still help your heirs avoid probate altogether. This ensures that your assets can be quickly transferred to the beneficiaries, and saves them the time and expense of a probate proceeding. Listed below are three of the most common ways to hold title to property; each has its advantages and drawbacks, depending on your personal situation.

Tenants in Common: When two or more individuals each own an undivided share of the property, it is known as a tenancy in common. Each co-tenant can transfer or sell his or her interest in the property without the consent of the co-tenants. In a tenancy in common, a deceased owner’s interest in the property continues after death and is distributed to the decedent’s heirs. Property titled in this manner is subject to probate, unless it is held in a living trust, but it enables you to leave your interest in the property to your own heirs rather than the property’s co-owners.

Joint Tenants:  In joint tenancy, two or more owners share a whole, undivided interest with right of survivorship. Upon the death of a joint tenant, the surviving joint tenants immediately become the owners of the entire property. The decedent’s interest in the property does not pass to his or her beneficiaries, regardless of any provisions in a living trust or will. A major advantage of joint tenancy is that a deceased joint tenant’s interest in the property passes to the surviving joint tenants without the asset going through probate. Joint tenancy has its disadvantages, too. Property owned in this manner can be attached by the creditors of any joint tenant, which could result in significant losses to the other joint tenants. Additionally, a joint tenant’s interest in the property cannot be sold or transferred without the consent of the other joint tenants.

Community Property with Right of Survivorship: Some states allow married couples to take title in this manner. When property is held this way, a surviving spouse automatically inherits the decedent’s interest in the property, without probate.

Make sure your estate planning attorney has a list of all of your property and exactly how you hold title to each asset, as this will directly affect how your property is distributed after you pass on. Automatic rules governing survivorship will control how property is distributed, regardless of what is stated in your will or living trust.


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