In recent months I have begun meeting with Oregon clients dealing with mortgage problems. Common mortgage problems include the following:
- Property is “under water,” in that debt exceeds equity, especially factoring in the cost of sale (usually about 6%).
- Client is locked in to one or two mortgages with very high interest (6 to 9%), compared to rates available over the last two years (3 to 5%). Further, Client’s lack of equity in the property prevents a refinance to a lower interest rate.
- Client purchased a property with their significant other (not spouse), and then broke up. The party staying in the home cannot refinance to get the other party’s name off the mortgage(s), because the property is under water.
- Client has been unable to consistently to make mortgage payments because of a loss of employment or decline in income. Foreclosure proceedings have been, or will soon be, filed.
While every client’s situation is unique, my general approach is as follows:
- The question of whether a bank can obtain a deficiency judgment against Client is often decisive. If the bank(s) cannot get a deficiency judgment, then foreclosure may be Client’s best option.
- The real estate industry has disseminated a lot of propaganda to consumers about the danger of foreclosure, and the supposed benefits of a short sale instead of foreclosure. In many cases, a short sale may offer no benefits to Client compared to a foreclosure, but is much more time consuming, aggravating, and possibly more expensive.
- I believe that banks (i.e., corporations) approach mortgages from a narrow financial self-interest perspective. The bank will take whatever action it believes will increase its bottom line, hopefully within the confines of state and federal laws. In my opinion, consumers should also use this approach, and be prepared to walk away from a mortgage that is a financial liability for their family.
Overall, dealing with troubled mortgage issues is very stressful, and I am happy to be able to assist clients in moving forward with their lives.
Many of my estate planning clients are relatively recent immigrants to the U.S., and continue to own property in their countries of origin. In particular, I am frequently asked questions about how an Oregon legal will or trust may affect property in India. Here are some general observations regarding this rather complicated subject:
- Clients residing in Oregon with assets in India should ideally consult with an estate planning attorney in India to ensure that those assets are distributed correctly at death.
- India is a common law jurisdiction, meaning that there are numerous similarities between U.S. and Indian estate laws. In particular, the probate process in India for a testate estate is very similar to Oregon probate. On the other hand, for an intestate estate, India law may be very different, as the distribution of assets may depend on the decedent’s religion (Hindu, Muslim, Christian, etc.).
- India does allow a revocable living trust (“RLT”), which could be used for probate avoidance, as in the U.S. However, a living trust created in the U.S. would be considered an “offshore trust,” meaning that complicated rules will apply for transferring assets into the RLT. For example, India may prohibit the transfer of immovable property, i.e., land, into such a trust, as the trust is not a resident of India.
- The transfer of financial assets from India into an offshore trust may require the approval of the Financial Bank of India under the Foreign Exchange and Management Act (“FEMA”).
- An Oregon legal will could be probated in Oregon, and then registered in an appropriate court in India to ensure the proper distribution of assets in India.
It is often difficult to predict spousal support amount and duration in an Oregon divorce case. While child support tends to closely follow the Oregon Child Support Guidelines, there is no set formula for spousal support in Oregon. Recently, however, I discussed the spousal support issue with a local judge, who referred to spousal support calculators used in other jurisdictions to give opposing counsel and I some parameters on how he might rule in our case. Here are some links to online spousal support calculators used in jurisdictions outside of Oregon:
- Massachusetts alimony calculator
- Maricopa County, Arizona alimony calculator
- Fairfax County, Virginia spousal support formula
While Oregon judges are of course free to not follow the formulas set forth above, the formulas may nonetheless be a good starting point for determining a range of appropriate values in an Oregon divorce case.
A person or couple creating a new estate plan should carefully consider changing beneficiary designations on retirement accounts and life insurance policies, to make sure that the goals of the estate plan are being served by these beneficiary designations. Priorities in changing beneficiary designations frequently include the following:
- Don’t leave money directly to a minor child or very young adult. If your will or living trust includes testamentary trust clauses for your children until the reach a certain age, name the first testamentary trustee as the beneficiary. Then name your children as the contingent beneficiaries after the trust. This will help ensure that, if your children have reached a certain age and the testamentary trust is no longer needed, your children will still receive the intended benefits. You can obtain appropriate language for naming a testamentary trust as a beneficiary from your attorney, life insurance provider, or financial institution.
- Name your living trust as the final contingent beneficiary. By doing so, you should avoid probate of the proceeds if all of your named beneficiaries have predeceased you.
- Consider deferred taxation on retirement benefits. IRAs, 401(k)s, and similar retirement benefit plans are subject to complicated rules regarding minimum distributions. Consult with a CPA or CFP about the tax implications of your beneficiary designations.
- Be careful about exposing life insurance proceeds to creditors’ claims. In most cases, life insurance proceeds are not subject to the claims of the deceased person’s creditors. Life insurance benefits can thus provide crucial support for minor children even if the parent’s estate was otherwise insolvent. Clients should thus be careful about naming their trust or estate as a beneficiary of life insurance proceeds, which could unnecessarily expose those proceeds to creditors’ claims.
While the rather high ($5 million) current federal estate tax exemption amount means that very few estates will owe federal estate taxes in 2012 and 2013, the much lower $1 million Oregon estate tax exemption amount means that many more estates will owe Oregon estate taxes in the coming years. In my own practice, I have frequently encountered estates in the $1-2 million range owing Oregon taxes that could have been avoided with proper estate tax planning.
Effective January 1, 2012, the current “Oregon Inheritance Tax” will be renamed the “Oregon Estate Tax,” and the present byzantine rate structure will thankfully be simplified. Estates in excess of $1 million will be subject to a variable tax rate of 10-16%, with highest 16% marginal tax rate kicking in at $9.5 million. Without tax planning, a single person with a $2 million estate may owe about $102,500 in Oregon estate taxes.
Basic estate tax planning strategies may address two important goals:
- Doubling the exemption amount. For married couples, tax planning may ensure that each spouse can use his/her exemption amount when assets eventually pass to children or other beneficiaries. The principle technique my law firm uses in this area is the disclaimer credit shelter trust. For a $2 million estate, proper use of a disclaimer credit shelter trust could save a married couple over $100,000 in Oregon estate taxes.
- Reducing the size of a taxable estate. Gifts during your lifetime may reduce the size of your taxable estate. A life insurance trust can move life insurance benefits outside of your taxable estate by transferring ownership of the life insurance policy. A charitable remainder trust may allow you to preserve income from assets while avoiding future estate taxes on those assets. Charitable giving can reduce or eliminate estate taxation, while allowing you to contribute to causes you believe in.
The estate planning team at Hillsboro Law Group PC provides affordable estate tax planning solutions for Oregon families. Consistent with our general philosophy, our estate tax planning services are priced to offer great value for our clients.
Consider also that, in January 2013, the federal estate tax exemption amount is scheduled to fall down to $1 million, with a huge 55% tax on amounts in excess of $1 million. Given the uncertain political climate in Washington, I believe that there is a real possibility that Congress may deadlock on the estate tax, and massive federal estate taxes could be imposed in 2013 on unprepared Americans.
For most clients, keeping legal fees down is, or should be, a major priority in the legal process. Surprisingly, however, many clients do not adequately explore the likely cost of litigation, perhaps because of the emotions involved. Here are some suggestions on how you can help reduce your legal costs if you need to hire an attorney:
- Carefully review the lawyer’s fee agreement. Fee agreements are usually drafted so as to give maximum leverage to the law firm. It is very important that you understand the precise mechanics of how you will be charged in your case.
- Review and understand your lawyer’s policies on minimum billing increments. Many lawyers will bill a minimum amount of time for a particular task. For example, lawyers may charge at least .1 (six minutes) or .25 (15 minutes) for a phone call, regardless of whether the call takes that full amount of time. If your lawyer will bill you .25 hours every time you call him/her, you should know that in advance. You might also consider the reasonableness of competing attorneys’ minimum billing amounts in deciding which law firm to hire.
- Try to consolidate your communications to your attorney, to reduce the impact of being billed for multiple emails, calls, etc. For example, if you are going through a divorce, rather than sending your attorney six emails on a given day about six different issues, try to send one email addressing all six issues.
- Before you hire an attorney, ask for a total cost estimate in writing, and request in writing that your attorney email you if the cost will exceed the estimate you have been given.
- Pay attention to your attorney’s hourly rate. In my experience, most clients are much more concerned about the initial retainer amount. The attorney’s hourly rate may ultimately have more impact on the total cost of litigation, however.
- If you are consulting with an attorney about a divorce, ask the attorney how much the firm charges on an average divorce case. Also ask what you can do to make sure that your legal fees do not exceed that average cost.
- After you hire an attorney, try to give a lot of consideration to the attorney’s advice. If your attorney advises you that a particular course of action will not likely be successful, but you pursue it any way, your legal fees will likely increase significantly. In some situations, you might also have to pay the opposing party’s legal fees, which can be financially devastating.
If you own a vacation home, and would like to keep that home in the family after you pass away, you have a variety of options to choose from. You might opt to directly transfer the property to your children upon your passing away, but this is rarely the best option. Your children would own the property as tenants in common, which is rarely conducive to effective property management (or to good sibling relations) over time.
Another option is to put the family cottage into a trust. This option may avoid some of the potential pitfalls of direct ownership by tenants in common. There are three main reasons, however, why a Family Cottage LLC is probably a better option than a trust:
- LLC management is usually more democratic than trust management, which can lead to more harmonious relations among your beneficiaries.
- If a claim for damages is made related to the vacation property, a trust may offer your beneficiaries less protection from personal liability compared to a LLC.
- The Rule Against Perpetuities mayt dictate that your a trust cannot last more than about 90 years. A LLC, on the other hand, has a potentially unlimited duration.