Tag Archives: Estate Planning Attorney

Pre-nups, Co-ownership and Real Estate

24 Aug

Metro®Boston, Publication Date: August 24, 2011
Expanded content

By Attorney George Warshaw

“Honey, I love you, but would you mind signing this little piece of paper for me?”

Relationship don’t always last forever, despite the best of intentions.

If you’ve been married before, broaching the subject of a pre-nuptial or a co-ownership agreement with a partner or future spouse is more the norm than the exception. It should not be overlooked in any relationship when planning for the future, especially if one person has real estate, substantial assets, or a prospective significant inheritance.

In the pre-nup or co-ownership agreements that I do for clients, I suggest simple methods of handling real estate. One way is this (and there are several other ways):

In the event of a divorce or separation, you get back what you put in to buy the property – or your present equity if you are contributing a property that you already own. Anything beyond that (i.e. the increase in value), is split evenly or according to a fair formula that considers everyone’s contributions, past and future.

Here’s an example (it may not be right for you). If you came into a relationship owning a condo consider the equity as yours. If, going forward, both of you make equal contributions towards the mortgage, taxes, insurance and condo fees, then, in the event of a divorce, any increase in the equity over time could be recovered 50-50.

 A variation on this approach is that each person gets back what each paid in to buy the house, pay for improvements and cover core expenses like taxes, insurance and mortgage. Each person’s contributions easily translate into a percentage of investment that can be applied to any profit or loss. While this approach sounds good on paper, this requires a bit of record keeping.

 While there are many ways of dealing with real estate in a pre-nup or co-ownership agreement, what’s often most important is the relationship, and that one person doesn’t feel like they are living in the other’s house. With good planning, that can be easily addressed.

It’s important in any relationship to discuss future finances. A pre-nuptial or co-ownership agreement should just be one of the discussion points. Since “no one suit fits all,” it’s critical to see a lawyer for advice and planning. One simple detail or concern can change the advice you may get.

© 2011 George Warshaw. All rights reserved.

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George Warshaw is a real estate attorney, estate planner and author. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts, prenuptial agreements and estate plans. George welcomes new clients and questions at george.warshaw@warshawlaw.com.

Legal Advice: Laws, and court decisions interpreting them, change frequently and this article is not updated as laws change. The content and information contained in this article is neither intended as legal advice nor shall establish an attorney-client relationship. Before making any legal decision, consult an attorney to see how or if the foregoing may apply to your circumstances.

Where Are Interest Rates Going?

11 Aug

Metro®Boston, Publication Date: August 10, 2011

By Attorney George Warshaw

Lost in the debris of the deficit debacle and the stock market free fall is the effect on mortgage interest rates. Will they rocket upwards, stay the same or decline?

Mortgage rates rise or fall based on something. But what?

There are actually two types of mortgage loans and two types of rates: first mortgages are long-term interest rates; home equity loans are short-term monthly rates. The rate on each is established differently, and often go in different directions based on the exact same news.

When the Fed announces that it is lowering or raising rates, that immediately affects the monthly rate charged on home equity loans, not first mortgages.

First mortgage rates are determined by the longer-term bond market. I’ve heard it said that first mortgage rates follow “the 10-year Treasury” or “mortgage backed securities” instead. In other words, as prices on a specific longer-term “fixed income investment” rise or fall on Wall Street, first mortgages interest rates ultimately bounce along with it.

Confused? Since no one seems to be managing our economy right now, you are not alone. Be safe. If you can lower your first mortgage rate, do it now.

Need a recommendation for a good mortgage lender? Email me. I know several good lenders.

© 2011 George Warshaw. All Rights Reserved.

George Warshaw is a real estate attorney and author. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts, and estate plans. George welcomes new clients and questions at george.warshaw@warshawlaw.com.

It’s Tax Time Again – Deducting Interest

30 Apr

Metro® Boston, Publication Date: March 30, 2011

By Attorney George Warshaw 

Last week I wrote about the advantages of paying off your mortgage early. A reader asked whether that was wise since a homeowner gets a tax deduction for all or part of the mortgage interest one pays. 

I’ve known many homeowners who say they like to have a mortgage so that they can deduct the interest on their taxes. I’ve never fully understood the rationale. 

A mortgage is not an investment; it’s a debt.  A dollar of mortgage interest does not reduce your taxes by a dollar. A homeowner only gets to offset income taxes by a percentage of that dollar. 

A tax deduction is not a tax credit. A tax credit reduces your taxes dollar for dollar. A deduction merely reduces the amount of income subject to tax. Here’s an example: 

Let’s suppose you are single and your taxable income is between $34,000 and $82,400. Of every taxable dollar you earn over $34,000, 25% (or 25 cents) is paid to the IRS in income taxes. Since a dollar of mortgage interest merely reduces your income by a dollar, a dollar of interest saves you only 25 cents. 

If you don’t need a mortgage, talk to your accountant or lawyer about the best tax strategy for you. © 2011 George Warshaw. 

The foregoing is not intended as legal advice. Consult an attorney to see how or if the foregoing applies to you.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties, prepares wills and trusts for inheriting real estate, and trusts that protect your children and pets. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.

Cash Now or Inherit Later?

30 Apr

Metro® Boston, Publication Date: March 9, 2011

By Attorney George Warshaw 

What would you do? 

An elderly parent owns several rental properties. He offers to sell these investments and give you your inheritance now. You could, of course, decline and simply inherit it several years from now. 

Most people, I suspect, would take the cash now – but they might be short changing themselves. Here’s why. 

Let’s say your parent sells an investment property and has to pay a capital gains tax of $100,000 on the profits realized. If you were to inherit the property instead, you might have saved the $100,000. 

When a person inherits real estate, he or she acquires it at its fair market value. Sell it at the same value and you haven’t made a profit in the eyes of the IRS. For example, if a property is worth a million when you inherit it and then you sell it at the same amount, you haven’t made a profit. You make a profit only if you sell it for more.

Be careful though: if your parent’s estate is large enough to be subject to a federal or state estate tax, it might be better to take the money today. Consult a tax accountant or attorney for your situation. © 2011 George Warshaw.

The foregoing is not intended as legal advice. Consult an attorney to see how or if the foregoing applies to you.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties, prepares wills and trusts for inheriting real estate, and trusts that protect your children and pets. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.

Should You Gift Real Estate?

30 Apr

Metro® Boston, Publication Date: January 12, 2011 

 By Attorney George Warshaw 

Is it better to receive a gift of real estate or inherit it later? Tax wise, a gift isn’t always the best choice for the recipient. 

When a person dies one’s real estate has to be valued. Let’s say the present market value of the house is $500,000, but you, the homeowner, only paid $100,000.

Give it to your children while you are alive and they later sell it for $500,000: they may have to pay a capital gains tax on $400,000 of profit. But if they inherit and sell it for $500,000, no tax or a lesser tax may be due.

 Here’s why:

 A person who receives a gift steps into the shoes of the giver. The recipient acquires the property at the same cost or tax basis as the person who gave it, i.e. $100,000. Sell it for $500,000 and you’ve made a profit. If you inherit property, you instead acquire it at its fair market value, i.e., the same as if you paid $500,000 for it. Sell it for $500,000 and you’ve sold it for the same amount that you acquired it.

 The above information may not apply you. Always consult your tax advisor or attorney before gifting real estate. There are numerous opportunities available to owners of real estate. © 2011 George Warshaw.

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Caution. The foregoing is not intended as legal advice. Laws, and court decisions interpreting them, change frequently. This post is not updated. If you have a legal question, only an actual consultation with an attorney who has an opportunity to review all the facts can provide an answer that applies to your situation.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties and prepares wills and trusts for inheriting real estate. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.

Gifting Your Home to Your Children

30 Apr

 Metro® Boston, Publication Date: January 5, 2011

 By Attorney George Warshaw

 It’s not unusual for parents to gift their home to their children and expect to live in it afterwards; but we’ve all heard stories – all too real – about how someone’s parents were later forced to move.

How can something so simple go so badly?

Suppose you (the parent) deed your home to your son as a gift. He gets a mortgage but can’t pay it; or, your son’s creditors place a lien against all real estate standing in his name; or, your son gets divorced and now your home is one of his assets before a probate judge.

How can you protect your home? A trust is perhaps the best method, but a life estate may work almost as well.

It works like this: In the deed to your son or daughter you, the parent, simply reserve the right to live in the house the rest of your life (i.e. called a “life estate”). While your son’s creditors may still acquire a lien, the lien is subject to your right to live in the house forever. If your son wants a mortgage, your permission is needed – and, if you take my advice – be smart, don’t give it! If you do give it, you will likely be evicted in the event of a foreclosure. © 2011 George Warshaw.

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Caution. The foregoing is not intended as legal advice. Laws, and court decisions interpreting them, change frequently. This post is not updated. If you have a legal question, only an actual consultation with an attorney who has an opportunity to review all the facts can provide an answer that applies to your situation.

Attorney George Warshaw represents buyers and sellers of homes, condos and investment properties and prepares wills and trusts for inheriting real estate. George welcomes new clients and questions at  george.warshaw@warshawlaw.com.