4 Reasons You Need an Estate Plan for Your Home

Estate planning is complicated, and you’ll need help from qualified pros, but here are four reasons to start thinking about an estate plan now.

1. A good estate plan keeps your heirs from fighting.
Say you intend to leave your house jointly to a son and daughter. But what if one kid wants to live in the house and the other wants to sell it? A reasonable estate plan wouldn’t force one child to indefinitely forgo a share in the value of the house.

Solutions:

If you have other assets, divide your estate, leaving the house to the child who wants it, and property of equivalent value to the other. If the house makes up the bulk of the estate, an insurance professional can help you with a policy that provides enough money for one sibling to buy out the other’s share.  In either case, talk with your heirs up front so you structure your estate plan to head off potential problems.

2. A good estate plan means no financial surprises for your heirs.

Two scenarios:
You sold the family home and bought a retirement condo, with a mortgage. Your heirs will eventually inherit both the condo and the loan as part of the estate. But they can’t assume the mortgage unless they’re planning to live in the condo. They’ll have to pay it off. That can be a nasty shock, says A. Raymond Benton, a certified financial planner in Denver.

It’s possible that in later years you’ll want a reverse mortgage to help pay for nursing care, for example, while you stay in your home. Upon inheriting the house, your heirs will have to come up with the money for the outstanding loan. Otherwise they’ll likely have to sell the house to pay back the lender. The bank won’t allow your heirs to just assume a reverse mortgage.

Action plan: Explain your situation to your heirs in advance as part of your estate plan, so they can be financially and emotionally prepared to accept an encumbered house as part of the estate.

3. A good estate plan means less of an estate tax hit.

With estate planning, your biggest issue is taxation—what else? But you’re pretty safe because although the federal estate tax has returned for 2011 and 2012 (after a 2010 hiatus), it’s toothless for most of us:

• You won’t get hit unless your estate is $5 million or more. But you’ll pay 35% on inheritances above that. Also, some states have a state estate tax, and those exemptions may be lower.

• You’ll face little or no capital gains tax. Say your parents bought their house 40 years ago for $20,000; now it’s valued at $250,000. Shortly after you inherit it, you sell it for $250,000. Under 2011’s full step-up rules, you pay no taxes on the profit. (Without any step-up, you would have to pay a hefty tax on the capital gains of $230,000.) Of course, if the home starts to rise in value after you inherit it, you’ll pay capital gains if you sell it later. BUT: only on the difference between its value on the day you inherited it and the price you sell it for.

• In 2010, there was a limited step-up: Everything you inherited—house, investments, other values—could be stepped up to a total of $1.3 million. So a home sale in 2010 may have given you a capital gains hit, depending on the amount of appreciation of not only the house but other inherited valuables.

I inherited an estate in 2010, so what happens to me?

1. You can apply the 2011 rules retroactively to Jan. 1, 2010. You probably will have to fill out IRS Form 706, which was essentially suspended for 2010 because there was no estate tax.
Or:
2. You can apply the 2010 rules with no estate tax, but only a limited step up—$1.3 million. You may have to fill out IRS Form 8939, which will allow you to calculate basis. The IRS has made a draft form, which, although not final, gives you an idea of the complexities involved in calculating basis in a house.

Which is right for you?

The retroactive $5 million option is a can’t-lose proposition. Only a tiny percentage of estates approach that mark, and you’re sure to avoid capital gains.

If you think your inherited estate may hit $5 million, weigh whether you’re better off paying some estate tax (2011 rules) or no estate tax but possible capital gains taxes (2010 rules). These calculations are complex; consult a tax professional.

Am I free from estate tax forever?

Unfortunately, no. The 2011 estate tax rules aren’t final. If Congress does nothing, in 2013 the exemption plummets to $1 million and you’ll be taxed at a rate of 55% on amounts above $1 million.

That probably won’t happen—Congress won’t let the exemption fall that low—but, hey, it’s Congress, so you never know.

Various trusts can help with long-term planning, especially if you’re likely to leave a seven-figure estate. There’s no one-size-fits-all solution; consult an estate planning attorney for strategies suited to you.

4. A good estate plan keeps you from losing your house if you get sick.

Of course, you may be thinking, “This is all academic. I’ll have to sell my home to pay for eldercare.”

But, with a combination of long-term-care policies and trust-based solutions, you can take care of yourself and leave your home to your heirs. Consult a lawyer experienced with estate planning or a qualified financial planner.

Do-It-Yourself Home Security Check: 5 Essential Steps

A professionally installed and monitored home security system is a nice addition to your home’s defenses, but it shouldn’t be step one. First, conduct your own home security check. After you’ve inspected your home’s doors and windows, make sure these essential steps are covered:

1. Keep your home well-maintained on the outside
Burglars want an easy target. Stand on the street outside your house and ask yourself: Does my property look neglected, hidden, or uninhabited? A front door or walkway that’s obscured by shrubbery offers crooks the perfect cover they need while they break a door or window. To improve security, trim shrubs away from windows and widen front walks.

2. Install motion detector lights
All sides of your house should be well-lit with motion-activated lighting, not just the front. Simple motion-activated floodlights cost less than $50 each, and installing them is an easy DIY job if the wiring is already in place.

3. Store your valuables
Thieves want easy-to-grab electronics, cash, jewelry, and other valuables, though some are not above running down the street with your flat-screen TV. Most make a beeline for the master bedroom, because that’s where you’re likely to hide spare cash, jewelry, even guns. 

Tour each room and ask yourself: is there anything here that I can move to a safe deposit box? Installing a home safe ($150 to $500) that’s bolted to your basement slab is a good repository for items you don’t use on a daily basis.

4. Secure your data
While you probably won’t be putting your home computer in a safe anytime soon, take steps to back up the personal information stored on it. Password protect your login screen, and always shut off your computer when not in use (you’ll save energy, too!) Don’t overlook irreplaceable items whose value may hard to quantify, like digital photos.

5. Prepare ahead of time in case the worst happens
Take a photo or video inventory of items of value in your home, and store the file online or in your home safe.
Check that you’re properly insured for theft. Note that high-ticket items in your home office, such as computers, professional camera equipment, or other business essentials, may require an additional rider or a separate policy


Source: Houselogic.com

Chase Offers Military Aid, After Past Mistakes

J.P. Morgan Chase & Co. is launching programs in April to help military families and vets stay in their homes. The announcement comes shortly after J.P. Morgan admitted to wrongly foreclosing on 18 active-duty military members and overcharging 4,500 on mortgages.

The military programs will include reduced mortgage rates for those covered under the Servicemembers Civil Relief Act, as well as enhanced mortgage modifications for active-duty military personnel since Sept. 11, 2011.

Chase also said it would not foreclose on any active military personnels' homes. If a wrongful foreclosure does occur, the bank would forgive all of that military member’s remaining mortgage debt, the company said. Also, within the next five years, the bank says it plans to donate 1,000 homes to military personnel and vets.

"This company has a great history of honoring military and veterans, and the mistakes we made on military foreclosures are a painful aberration on that track record," says Chairman and Chief Executive Jamie Dimon.

Meanwhile, following Chase’s admission of wrongfully overcharging and foreclosing on military personnel, lawmakers are considering new legislation to help prevent military personnel from losing their homes and being faced with high interest rates.

Source: “J.P. Morgan Unveils Mortgage Programs for Military Customers,” Dow Jones News Service (Feb. 15, 2011)

Small Houses Squeeze Out McMansions

Home sizes continue to shrink across the country as families look to downsize and move closer to the city.

"A McMansion was a trophy--often times a house with five or six bedrooms when you only needed two," says Scott Phillips, a real estate agent with Keller Williams in Cleveland.
The median home size in 2008, the most recent year for data, is 1,825 square feet, according to the National Association of REALTORS®. First-time buyers are buying even smaller at 1,580 square feet.

Phillips says home owners aren’t just downsizing but they are also moving closer to the city.

"People like to live where they're closer to the amenities, the parks, night life, grocery stores," he says.

Source: “McMansions Out of Vogue in New Economic Reality,” Gannett News Service (Feb. 11, 2011)

Real Estate Is 'as Affordable as it Gets'

Now is a good time to buy real estate, according to data from Moody’s Analytics. Home affordability has returned to pre-housing bubble levels or even fallen below the average in many U.S. markets.

In fact, housing affordability by the end of September had returned to or fallen below the average reached between 1989-2003 in 47 of the 74 housing markets that Moody Analytics tracked.

In September 2010, the ratio of home prices to annual household income had fallen to 1.6--below the historical average of 1.9 between 1989 and 2003. The ratio peaked in 2005 at 2.3.

"Based on incomes, this is as affordable as it gets," says Mark Zandi, chief economist at Moody's Analytics. "If you can get a loan, these are pretty good times to buy."

Some of the most undervalued markets include Cleveland, Detroit, Las Vegas, Atlanta, and Phoenix.

But those cities also are facing high rates of foreclosures and more borrowers defaulting on their mortgages that could decrease values further in those cities before they start to improve, Zandi says.

In Phoenix, for example, "it's become cheaper to buy than to rent,” Jon Mirmelli, a real estate investor in Scottsdale, Ariz., who rents out foreclosed homes, told The Wall Street Journal. "But the question is: can you qualify for a loan?"

Source: “Home Affordability Returns to Pre-Bubble Levels,” The Wall Street Journal Online (Feb. 8, 2011)

The BBVA Compass Professional Program | 100% Mortgage Financing for Dallas Physicians

If you are a physician or eligible professional in the Dallas area and are in the market to purchase a home or refinance an existing mortgage, your friends at BBVA Compass have tailored a special program called The Professional Program, which offers competitive rates and 100% mortgage financing for physicians/doctors in the Dallas area.

This program is only offered at BBVA Compass and is a unique opportunity for qualified Dallas area doctors/physicians and eligible professionals to obtain 100% mortgage financing on a home purchase.

Program highlights of the Professional Program for physicians (Program rules are subject to change at any time without notice):

• 100% mortgage financing up to one million dollars for primary residences.
•NO PMI (private mortgage insurance) required!
•Eligible properties inclue Single Family Residences, Town Homes, Lofts and Condominiums.
•Student loan payments are NOT included in the debt-to-income ratio calculation if they are deferred for at least 12 months.
•Expansion of loan-to-value ratios for physicians that want to refinance an existing mortgage.
•BBVA Compass offers a free investment and insurance review with a wealth management professional.
Doctors/Physicians Eligible for the 100% Mortgage Financing Program include:

•Resident or practicing physicians.
•Oral surgeons
Other Eligible Professions include:

• Attorneys
•Certified Public Accountants
•CEOs, CFOs, COOs or Chairmen of publicly traded companies.
•Executives in direct report to the CEO or Charman of publicly traded companies.
Is the BBVA Compass Professional Program available in other areas besides Dallas?

YES! BBVA Compass offers this program in seven states:

•Texas
•New Mexico
•Arizona
•California
•Colorado
•Florida
•Alabama
The first step in the homebuying process should always be mortgage pre-approval. BBVA Compass makes pre-approval fast and easy. Their automated approval system allows for quick and streamlined loan pre-approvals with no application fee.

To consult with a BBVA Compass loan professional about this program, please call Cari Marks at (972) 705-4408. Or you can email her directly at cari.marks@bbvacompass.com Completing the contact form below will ensure priority processing.

Home Ownership Offers Plenty of Tax Benefits

▪ Home mortgage interest deduction: Home owners can take an itemized deduction on interest paid on a mortgage or mortgages of up to $1 million for a principal residence and/or second home. This deduction could potentially reduce the cost of borrowing by one-third or more.
▪ Property tax deduction: Home owners can deduct from their federal income taxes the state and local property taxes that you pay on the home.
▪ Deductible home buying expenses: Several closing costs in a home purchase are also deductible, such as loan origination fees (points), prorated interest on a new loan, and prorated property taxes paid at settlement.
▪ $250,000/$500,000 home-sale exclusion: Home owners who have lived in their home for two of the prior five years prior to its sale do not have to pay income tax on the majority of their profit — $250,000 for single home owners and $500,000 for married homeowners who file jointly.
▪ 14 days of free rental income: Home owners can rent the home up to 14 days during the year and pay no tax at all on the rental income.


Source: “The Tax Benefits of Homeownership,” Inman News (Feb. 4, 2011) (log in required)

The Most Common Tax Mistakes

The biggest problems small business owners make on their taxes are often mistakes or oversights they made during the previous year, the Associated Press reports. Sloppy record-keeping is the main reason for mistakes, even when accounting software is used, experts say.

Small business owners also often short-change themselves by not taking all the deductions they are entitled to because they aren’t well versed in tax law basics.

Here are two tips from experts:

1. Improve your record-keeping. Jeffrey Berdahl, a certified public accountant with RLB Accountants in Allentown, Pa., says it’s important to have a record-keeping program. If you use computer software, become an expert at it or pay someone who’s more tech-savvy to input the numbers for you, he says.

2. Keep track of business vs. personal expenses. If you use your car or home for business and personal reasons, you need to keep track of what you spend for each. Berdahl says those who use their cars partly for the business, or who have a home office, should go over all the expenses from the previous year and be sure that they don't miss any deductions.

For car expenses: Insurance, gas, repairs, and garage rental can all be deductible. Determine the percentage that the vehicle was used for business and then multiply that by the expenses for the deduction amount.

For a home office: Mortgage interest or rent, insurance, utilities, and maintenance costs can be deducted, using the home’s square footage as a guide for the deduction amount.


Source: “Small Business Tax-Time Problems Usually Result From Mistakes, Omissions Made in the Past,” The Associated Press (Jan. 20, 2011)

Fed Averts Final Call on Foreclosure Rule

The Federal Reserve said it will no longer push ahead on a controversial proposal that would impact home foreclosures. Instead, the central bank will leave the decision to the new Consumer Financial Protection Bureau, which debuts in July and will oversee the truth-in-lending law.

The Fed had proposed a rule that would make a key timing change of when a borrower can cancel a mortgage that violates disclosure requirements under the truth-in-lending law. Currently, borrowers have up to three years to take a lender to court to cancel a loan--known as “rescission.” Borrowers must then show that required disclosures about the loans terms were not made. If the loan is canceled, borrowers must pay off the principal but can deduct from the loan’s total amount what would have been paid in interest and other fees.

Consumer advocates have argued that the Fed’s proposed rule would require borrowers to pay off the loan before it is canceled, and home owners then would lose leverage to renegotiate loans with banks.

The Fed has said the rule change is needed to add clarity to a confusing system.

Source: “Fed Leaves Truth-in-Lending Rule to Consumer Agency,” Reuters News (Feb. 1, 2011)

New Gov't Financial Agency Outlines its Authority

The Consumer Financial Protection Bureau will monitor mortgages, credit cards, and other financial products starting July 21, but the federal watchdog is starting to release more details of what else it will be monitoring.

The agency also will set out to improve financial literacy and protect military and senior citizens from predatory financial products.

Here are some of the products and services that CFPB will monitor:

Mortgages
Credit cards
Credit counseling
Credit reporting bureaus
Debt collectors
Deposit accounts.


Here is what is exempt from CFPB’s jurisdiction:

Real estate brokers
Lawyers
Accountants
Auto dealers
Banks and credit unions with less than $10 billion in assets.

Source: “A Look at the Authority of the New Consumer Financial Protection Bureau,” Associated Press (Jan. 31, 2011)