Tag Archives: Wills and Trusts

Is an Inheritance a Gift or an Entitlement?

26 Sep

MetroBoston publication date September 25, 2013
By Attorney George Warshaw

The answer depends not only on your personal philosophy but whether you are the one inheriting or giving.

More people these days are considering whether it is better to leave all or a sizeable portion of one’s money and property to a charity rather than one’s children.

A frequently asked question is whether an inheritance will help one’s children in some important way or provide an incentive to do little or nothing with their lives, personal growth, or career development.

Frankly, too many children of wealthy or financially well-off families seem to do far less with their lives while waiting for an inheritance and become hostile later on when they don’t believe they received enough.

In my view, the number one purpose of earning money and acquiring assets over a lifetime is to take care of oneself first and foremost. What you leave to your children afterwards is something you earned. That point should be emphasized to one’s children.

Many believe today that the best estate plans remove the cost burden of education and medical expenses for one’s children or grandchildren, provide support where needed and incentives to do more with their lives.

More next week.

© 2013 George Warshaw.  George Warshaw is a well-known attorney and author. He represents buyers and sellers of homes and condos in Massachusetts, litigates real estate matters, and prepares wills, trusts, and estate plans. George welcomes new clients and questions.

Marriage and Real Estate

5 Feb

MetroBoston Publication Date February 5, 2013
By Attorney George Warshaw

State law provides married couples a special form of home ownership protection. It’s referred to as a “tenancy by the entirety.” It’s like a joint tenancy but for married couples.

It’s created by simply stating in the deed, “I grant to Dick and Jane, husband and wife (or being a married couple), as tenants by the entirety, the following property . . . .”

What’s special about it?

Real estate acquired under the heading “tenants by the entirety” is similar to a joint tenancy in one sense: if one person dies the other inherits it automatically. A probate court is not required to pass title to the survivor.

Marital property held this way has two special features: first, a creditor of only one spouse cannot seize and sell the marital home so long as it is the principal residence of the other spouse; and second, neither spouse can eliminate the right of the other to inherit the property by merely giving a deed to a child or an outsider.  

There are several exceptions that may make a visit to a lawyer worthwhile. If you acquired your martial home before February 11, 1980 or were originally deeded your home as joint tenants or tenants in common, consult a real estate lawyer to upgrade your ownership. © 2013 George Warshaw.

George Warshaw is a well-known 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. Contact him at metro@warshawlaw.com.

 

 

Owing Real Estate as Joint Tenants

31 Jan

MetroBoston Publication Date January 31, 2013
By Attorney George Warshaw

Two or more people can own real estate together in several ways. One of the most common is as “joint tenants with rights of survivorship.”

A joint tenancy is a form of ownership by which a person’s ownership rights in property pass to one’s co-owners upon death.

Ordinarily, when a person dies the heirs must go through the probate court to obtain certification of an inheritance of real estate. Property owned or held as “joint tenants” avoids probate because the property transfer is automatic upon death.

Simply file the death certificate with the Registry of Deeds and the transfer of legal ownership become complete and noted in the official records. Nothing more is necessary to effectuate the transfer of title ownership.

A joint tenancy in real property is established by the initial words of transfer used in the deed. “I grant to Fred and Wilma Flintstone the following property as joint tenants with the right of survivorship . . . .” is how it is typically phrased.

Can one joint tenant deed his or her interest without the consent of the others? Yes. One joint tenant always has the right to transfer his or her ownership interest without the permission of the other – but the automatic inheritance right is usually lost upon the transfer. © 2013 George Warshaw.

George Warshaw is a well-known 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. Contact him at metro@warshawlaw.com.

 

 

Is it Better to Give than Receive?

17 Jan

MetroBoston Publication Date January 17, 2013
By Attorney George Warshaw

When families get together over the holidays talk often turns to inheriting mom or dad’s house or estate.

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

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 mom or dad only paid $100,000 for it.

Give it to your children while you are alive and they are considered to have acquired it at the same price you (mom and dad) paid plus any improvements.

A person who receives a gift steps into the shoes of the giver. If your children acquire the property by gift at the same price or tax basis as mom and dad paid ($100,000) and sell it later for $500,000, they’ve made a profit of $400,000.

If your children inherit it later, on the other hand, the tax law treats it as if your children bought it at its fair market value. Inherit it at $500,000, sell it at $500,000 and they technically made no profit.

Always consult your tax advisor or attorney before gifting real estate. It’s a complicated subject. The above information may not apply you. © 2013 George Warshaw.

George Warshaw is a well-known 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. Contact him at metro@warshawlaw.com.

 

 

WHO SHOULD YOU TELL ABOUT YOUR WILL

1 Nov

MetroBoston Publication Date October 31, 2012
By Attorney George Warshaw

Other than your spouse and your lawyer, should you tell anyone else?

Think thrice before you do. It may go against your compelling desire to let others know about their inheritances, but I say this from experience: people often change their minds when it comes to money and property, especially later in life, and more especially if they remarry.

Create an expectation that doesn’t come true, and you may leave someone with badly injured feelings or ill thoughts of you.

The purpose of a will may be to leave money and property to someone, but there is another purpose, rarely considered, but as important in my view – avoiding family strife and discord that often follows a surprising inheritance or disinheritance after one’s death.

Take your children for example. Once you’re dead you won’t be able to fix hurt feelings if an inheritance doesn’t match your promise or their expectations.

And we’ve all heard the stories of families torn apart after an older parent remarries and promised inheritances go to someone else’s children. Use your will to promote family harmony and a positive memory of you.

So be careful what you disclose if you decide to tell all.  Contact me if you need help with your planning. ©2012 George Warshaw.

George Warshaw is a well-known attorney and legal author . He practices real estate and estate planning, assisting buyers and sellers of homes and condos and preparing wills and trusts. Send him your thoughts and comments at metro@warshawlaw.com.

 

Minimizing Stress in Buying a New Home

18 Oct

MetroBoston Publication Date October 17, 2012
By Attorney George Warshaw

The real estate market has heated up. While prices are not what they once were, prices are moving upwards with many properties selling over the asking price.

With pent up buyer demand comes stress, especially if you are selling your home and buying a new one.

Avoid the two most common mistakes that buyers make.

First, if you are selling and buying a new home don’t try to do both on the same day. Sell on one day and buy the next. There is too much that can go wrong to risk it all on the same day.

Second, don’t choose the busiest day of the week to close on your purchase.


What would happen if the deed doesn’t get recorded that day? You might not be able to move into your new home for several days. If the sellers were counting on the money to buy a new place to live on the same day, what will they do?


All this can be avoided: never choose a Friday, the last day of any month or the day before a holiday for your closing. These are the busiest real estate days. Why take a chance?


Everything happens very quickly in real estate. Take your time – and a deep breath. © 2012 George Warshaw.

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 metro@warshawlaw.com.

 

Medicaid – Taming the 800 lb. Gorilla

29 Mar

Metro®Boston, Publication Date: March 28,  2012
By Attorney George Warshaw

Second in a Medicaid series

It is a Gorilla, though not necessarily as nice. It’s filled with rules, exceptions to rules, exceptions to exceptions and a time consuming and discouraging process.

I needed to learn how one protected or lost one’s home or inheritance. I spent weeks reading the MassHealth regulations, researching Medicaid online and reading more on the subject. I found a way to organize this mess of information to make sense of it – for you and me.

There are four key rules: rules that qualify you for Medicaid; rules that disqualify or penalize you; rules that protect you from the Gorilla; and rules that drain your children’s inheritance.

And for each rule, there is always one more question: is the Medicaid applicant married or unmarried, because the rules often differ if an applicant is married.

For example, there are circumstances where an unmarried Medicaid applicant can be forced to sell his home to pay for nursing home care before qualifying for Medicaid or retaining it; but if he is married, and his wife still resides in the house, the home is usually fully protected from a Medicaid required sale.

More next week!

Warning: only a personal consultation with an Elder Care Attorney can provide proper legal advice for your situation. This article provides general information only.

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 metro@warshawlaw.com

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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.

MEDICAID AND YOUR HOME

22 Mar

Metro®Boston, Publication Date: March 21,  2012
By Attorney George Warshaw

In the last few weeks we used the plight of 98 yr. old Mrs. K, who found herself being evicted by her son from the home she once owned, to review how a parent can protect oneself when transferring a home to one’s children. See www.GeorgeintheMetro.com.

The risks in any such gift or transfer are apparent: what happens to a parent’s home if the child who is supposed to protect the parent gets divorced, sued or becomes bankrupt, or mortgages the house without the parent’s knowledge – or sells the house?

It happens despite the best of intentions. That’s why trusts are good. They can protect a parent through customized content.

But what often what works for one purpose doesn’t work for another. That’s true at times with Medicaid. Medicaid doesn’t like trusts. And trusts don’t like Medicaid.

The premise of Medicaid is simple: with certain exceptions, the government believes that a person should exhaust nearly all his or her personal assets before the government should pay a dime for nursing home care and Medicaid benefits. The government is the 800 lb. gorilla life looming over your life.

The Medicaid regulations are intricate, complex and not well understood. I’m going to explore several rules that affect one’s home in next few columns. Stay tuned. © 2012 George Warshaw.

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 metro@warshawlaw.com

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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.

Love and Kisses until Your House is Gone

15 Mar

Metro®Boston, Publication Date: March 14, 2012
By Attorney George Warshaw

It’s like a scene from “The Bachelor.”

It’s all love and kisses, “til death do us part,” and syrup on the pancakes – until reality sinks in. It’s back to the daily job and routine daily life? Does anyone get or stay married?

Is it any different when an older parent deeds the family home to one’s kids for love and affection? “We’ll use it to take care of you – and the government won’t get it!”

But the deed’s in someone else’s name! What if son or daughter gets divorced, sick or sued? Or if son or daughter needs personal money and borrows against the house – temporarily, of course?

One way of protecting a home is through a trust. A trust is a set of rules constructed by a lawyer to accomplish a goal or protect an asset, oftentimes both.

The trustees own the house on behalf of the trust and not personally – and a parent can name a trusted advisor as co-trustee who can have veto power on the sale or mortgaging of the home.

The house is thus protected from unnecessary sale or mortgage and the personal creditors of the son or daughter.

Caution: Check with a Medicaid attorney before transferring property out of an older parent’s name.

George Warshaw is a real estate and estate planning attorney in Massachusetts. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts for individuals and families. George welcomes new clients and questions at metro@warshawlaw.com.

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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.

Mom Strikes Back!

7 Mar

Metro®Boston, Publication Date: March 7, 2012
By: George Warshaw

Last week I wrote about the loving son who filed to evict his 98 year old mother from the home she previously deeded to him. The son gave up!

How can a parent protect one’s home while deeding it, with good intentions, to a child to manage or oversee?

The first caution I must mention is that planning to accomplish one thing for older parents often makes a mess of something else.

For example, you may wish to transfer the deed of a property into a trust for ease of inheritance; the transfer, however, may create an unintended Medicaid planning problem.

To safeguard a parent’s home, one should think twice (or three or four times) before deeding it to one’s children. The loss of control for the elderly Mrs. K almost cost her dearly.

There are several safeguarding techniques I like to use.

A parent can grant the home to a child or relative and reserve a “life estate”; i.e. a right to live in and use the house for one’s life; or place the property into a trust.

If using a trust, it is often valuable to require the consent of a trusted advisor (lawyer, financial planner, etc.) before a trustee can sell or mortgage the house.

More on this Next Week. © 2012 George Warshaw.

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 metro@warshawlaw.com.

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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.

Giving Mom The Boot

1 Mar

Metro®Boston, Publication Date: February 29, 2012
By: George Warshaw

You may have read about the loving son who filed to evict his 98 year old mother from the home she once owned.

Mrs. Kantorowski deeded her home to her son several years ago. Though he wants to move her to a facility that will better care for her, she doesn’t want to go. Perhaps if he wasn’t trying to sell the house, his motives might have better credibility.

Mrs. K has one thing on her side. She didn’t deed the house directly to her son; she deeded it to him as trustee of a trust for her benefit.

A trustee owes the beneficiaries very special obligations, in this case, mom. It’s called “fiduciary obligations”. It’s a very high standard that courts impose on trustees to act in the best interests of those whose money and property they’re holding in trust.

There’s a rule in trusts against “self-dealing,” meaning a trustee can’t use trust property for his personal benefit, unless the terms of the trust permit it. While a trustee may receive a fee for services, he can’t sell the house and pocket the money – or so mom hopes.

So when mom goes to court next month, we’ll see who gets the boot!

More on this Next Week. © 2012 George Warshaw.

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 metro@warshawlaw.com.

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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.

Do You Need A Children’s Trust?

7 Feb

Metro®Boston, Publication Date: February 8, 2012
By: George Warshaw

Is there anything more important than your children’s upbringing?  What would they do if you died?

Many people add a few scant words in their wills to provide for their children; others create a so-called subtrust as part of a 60-90 page master estate planning trust that requires a flow chart and diagrams to figure out.

Let me give you another idea.

Why not create a separate trust document devoted solely to your children, written in plain English, that they and you can read and understand. Call it a “Children’s Trust”.  Your will, life insurance or master estate planning trust funds the trust and all or part of your children’s upbringing.

You can fund their education, provide for medical care and reward personal accomplishments. You can provide incentives that broaden their personal growth and experiences. Here’s an example:

Let’s say you want your child to experience first-hand the heartbreak of a Katrina-like disaster and helping people in need. In your Children’s Trust, you offer to pay your child a handsome salary for spending a summer working for Habitat for Humanity or the like.

So consider what’s important to you and perhaps your child will “ace” your final exam!

Next week:  Protecting your Pets.

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© 2012 George Warshaw.  George Warshaw is a real estate and estate planning attorney in Massachusetts. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts for individuals and families. George welcomes new clients and questions at metro@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.

Where is Grandma’s Will?

11 Jan

Metro®Boston, Publication Date: January 4, 2012
By Attorney George Warshaw

Over family gatherings during the holidays, the topic often turns to one’s parent’s or grandparent’s will.

“It’s in the safe deposit  box, I think.”

“It’s in her sock drawer with her old letters from Dad.”

“It’s not where I saw it last. OMG! Maybe the lawyer has it?”

While a safe deposit box seems like a good idea to put the will, if your name isn’t on the box you will need authority from a court to open the box.

There’s another place you can store a will that is cheap and easy.

Try the Registry of Probate. The fee varies with the county but it’s not a lot.

In our office, we hold the original will for 12 months in case someone wants to make any changes or updates. We then file the will with the Probate Court.

Since most changes or corrections are made in the first year, it’s not likely to change for several years and the will can be easily retrieved for updating.

If the person later dies, the Probate Court checks its storage records when an estate is later filed.

So if you want to find it when you need it, consider using the Probate Court instead of a safe deposit box or Grandma’s sock drawer!

© 2011 George Warshaw.

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 metro@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 the foregoing may apply to your circumstances.

Is it Better to Inherit Real Estate?

20 Dec

Metro®Boston, Publication Date: December 14, 2011
By Attorney George Warshaw

Many people often want to give their home to their children before they die. It’s certainly simpler but it sometimes has unintended tax consequences. (See GeorgeintheMetro.com for last week’s story).

There is an important tax rule regarding inheriting real estate that could save you a bundle of taxes.

When a person dies, the fair market value of any real estate owned must be determined. If you inherit property, you inherit it at its fair market value.

Inherit a house worth $500,000, sell it a month later for $500,000, and there is no taxable gain. But what if your parents only paid $100,000 for it 20 years ago?

It matters not what your parents paid if you inherit it, but it may matter if you receive it as a gift during their lifetimes.

The basic tax rule is this: you inherit property at fair market value; but when you receive it as a gift, you acquire it at the same cost+ tax basis as the giver had in the property. Sell it later for more than cost+ and you could pay a tax that could have been avoided.

So before gifting real estate: always consult your tax advisor or attorney. The foregoing is not intended as legal advice.

© 2011 George Warshaw. All Right 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.  

Legal Advice: Laws, and court decisionsinterpreting them, change frequently and this article is not updated as laws change. The content and information contained in this article is neitherintended as legal advice nor shall establish an attorney-client relationship.

Before making any legal decision, consult an attorney to see how 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.

Money When You Need It

26 Jul

Metro®Boston, Publication Date: July 13, 2011

By Attorney George Warshaw

I’ve always relied on a simple lending principle: banks will gladly loan you money when you don’t need it; but not necessarily when you really need it.

That’s why home equity loans are a key financing planning tool.

A home equity loan (often called a HELOC) is a loan against the equity in your house or condo. The interest rate is typically based on the prime rate and can float or change monthly as the prime changes. It functions like a credit card.

I spoke with William Schulz, a banker at Citibank (617-725-0104, william.h.schulz@citi.com), a specialist in home equity loans.

“Because interest is often (i.e. not always) deductible on your taxes, many people use it for their children’s college education, home remodeling, medical expenses, or to have money available should they need it,” he said.

“The process is simple. It costs the borrower nothing in fees, and nothing if you don’t use it. Once you provide the necessary paperwork, it’s usually 30 days to closing.”

Since interest paid on a credit card is often not deductible, a HELOC can be a sensible way of making major purchases – but be careful: like any mortgage loan, it has to be repaid!

© 2011 George Warshaw. All rights reserved.

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George Warshaw is a real estate attorney and legal 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.

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 the foregoing may apply to your circumstances.

Getting Older – The New American Dream

30 Jun

Metro®Boston, Publication Date: June 29, 2011

By Attorney George Warshaw

The economy has changed the way older homeowners view their future.

Many are selling their long-time residence and renting rather than buying a
replacement home. No more mowing the lawn, paying a mortgage and maintaining an aging house. Sell the house, bank the money.

The second home market in a prolonged down economy is usually the first to collapse and the first to present opportunities. Among those who rent their primary residence, many are taking advantage of the depressed market to buy a vacation house.

I spoke about this recently with Jennifer Knight, a REMAX buyer’s broker on Martha’s Vineyard (jennifer@jennifersrealestate.com, (508) 221-2615).

“Tastes and needs have changed. Many who have sold their primary homes still need a place where they can entertain; where friends, children and family can be together, especially in an environment where there is a great deal of life, enjoyment and energy.

“But now they’re buying with cash flow in mind. They’re buying and then renting their Vineyard house for a month or two in the summer. The income from the vacation home rental covers the taxes and possibly operating costs, and they still get to host their family and friends.”

What’s happening on Martha’s Vineyard is not unique as people strive to find a balance between the life style they want or need, and the means to support it.

The prolonged so-called “jobless recovery” has caused many to change their approach to getting older and restructure their personal financial game plan. No one any longer believes that social security will be there for you when you retire.

It’s not simply a matter of the continual rise in the age when you are eligible to receive benefits – obviously they hope you are dead before the government has to pay; rather, the government has “borrowed” most of the money for its day-to-day operating expenses.

The recent debt ceiling crisis revealed that the government raided social security as a loan to be repaid in the future. Now the government needs to raise the debt ceiling to be able to borrow more money to pay its bills and repay social security.

Hmmmm! Perhaps they should consult a financial planner or better yet, I’m sure Bernie Madoff could give them some advice. At least he has experience!

© 2011 George Warshaw. All rights reserved.

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George Warshaw is a real estate attorney and legal 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.

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 the foregoing may apply to your circumstances.

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.