Don’t let a real estate sale sow the seeds of family discord

Don’t let a real estate sale sow the seeds of family discord

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Without doubt, moving creates massive disruption both before and after the actual event. Purchasing or selling real estate can have that effect on an estate plan, too, both because a change of assets can sometimes have unexpected effects, and because real estate often comprises one of the larger holdings.

Most people do not intend the real estate transaction to create discord. A quick review of the estate plans can avert unbalanced distributions that can lead to disputes.

Several problems can arise when estate plans make gifts of specific real estate. Under such a scenario, when a property is sold, that portion of the estate plan will lapse. The intended beneficiary can not receive what is no longer the donor’s to give. If the plan distributed particular parcels of real estate to various beneficiaries, the previously contemplated distribution may become unbalanced. Thus, after the sale, some persons may receive more than others.

If a property that was designated for a particular beneficiary is sold and another is purchased, the new property will not automatically be distributed to the same person. Unless the owner makes a particular provision in the estate plan, the new real estate likely will be distributed according to any catch-all or pour-over provisions, either for other real estate or for the remainder of the estate.

If new real estate is not purchased, but the proceeds retained as cash or invested into other assets, then any distribution will be according to the directions set for that type of asset. Those instructions may vary widely from the instructions for real estate holdings.

In short, it is worth reviewing any estate plan to ensure that the intended distribution remains satisfactory after any significant change of assets to ensure that the owner’s intent is carried out, and to avoid potential disputes among family members and challenges to the estate plan.

Often a simple amendment to a trust or a codicil to a will, if properly drafted and executed, can address the problem without having to start from scratch.

The Nuts and Bolts of Estate Planning

The Nuts and Bolts of Estate Planning

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What is estate planning? An estate plan is a method to ensure that one’s intentions are carried out when unable to articulate them due to a death or disability. The hope is that such a day does not arrive for a long time, but with enough time it becomes a certainty. The estate plan is a way of making an investment today to minimize the disruption that such an event can cause.

Some people think that estate planning is not for everyone. Ultimately, it is relationships, special needs and objectives, and concise administration that are the central goals of estate planning. The level of assets is secondary to many estate planning issues.

What is in an estate plan?  

Simply put, an estate is the collection of everything that a person owns.  It can include both fixed and portable property, i.e., real estate and personal property.

An estate plan typically consists of several documents that instruct others on what to do when one of life’s contingencies occurs. Central to most estate plans are a will, powers of attorney for healthcare and property, and a living will.

Additional documents, including trusts and other directives, can be added based on the individual’s needs and circumstances.

Why do an estate plan?

Estate planning allows individuals to account for change on many fronts, including:
– the growth and dynamics of the family
– healthcare requirements that have become more complex in recent years
– increasingly diverse asset management and holdings

What Is Estate Planning?

What Is Estate Planning?

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What is estate planning and why should you do it? Estate planning is an opportunity to set out your intentions, values and priorities in the event that you are not able to articulate them in the future. It is more than just about having a will and reaches goals beyond distributing assets or bypassing probate. While those can result from the process, there are bigger goals to contemplate.

One benefit of estate planning that can be overlooked is the opportunity to reflect on whether life goals and opportunities are being pursued in a direct and optimal way. If the process of accounting for present assets, debts, opportunities and revenues does not match the desired direction, estate planning can be a time to implement changes.

Another benefit is to protect and preserve assets as well as to identify and fill in missing pieces. Wealth often is about more than just bank deposits. Sometimes a review of the situation can address imbalances or gaps before a damaging event or market swing.

It also is a means to put mechanisms in place to ensure a more secure future for family members, by providing continuity in business and financial matters and by making provisions for children and persons with special needs.

In summary, those who have put an estate plan in place can say that it’s their way to make an investment today to protect both family members and assets going forward. Changes – even major life changes – are inevitable over time. Beginning to manage them is as easy as asking to do so and the benefits can pay many times over the initial investment.

Condominium Rental Caps

Condominium Rental Caps

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The topic of rental caps can elicit both positive and negative responses when proposed in a condominium setting. The concept of the rental cap is to limit the number of rented units to a certain number or proportion of the association.

The purpose for a rental cap is to ensure the continued marketability of the units in a condominium.  For example, when an association has a higher rate of rentals than what Fannie Mae lending guidelines allows, mortgage lending may be refused. Therefore, owners may be limited to selling their units to cash buyers, making for a more difficult sale process. A well-drafted rental cap can avoid reaching this scenario.

The imposition of a rental cap does limit a property right, however. Normally, a property owner is free to rent his unit to a willing tenant. The rental cap prevents this, for at least a portion of the unit owners at any given time. Once the cap is reached, subsequent owners who are not occupying the unit must either sell it or leave it vacant.

Some of the issues involved in creating a rental cap are:
– What proportion of rentals should be allowed under the cap?
– Who gets the right to rent their unit?
– What is the treatment of owners whose unit is rented on the date the cap takes effect?
– If the cap is reached, will owners be limited in the time they may rent their unit before the right to rent shifts to a different owner on a waiting list? Or do the owners renting first get to rent for as long as they own the property?

A rental caps can be imposed either by amending the Condominium Declaration, or by the adoption of a rule by the Board of Directors. Either approach require notice to all unit owners.

Whether a rental cap is worthwhile requires a balance of costs and benefits to the association as a whole, and a consideration of the needs of the unit owners. But when marketability of the units is a concern, a rental cap is a tool that ultimately can strengthen the property.

The Importance Of A Will: Six Ways It Can Help Your Family

The Importance Of A Will: Six Ways It Can Help Your Family

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Many people think the importance of a will is primarily as a document that causes the distribution of their assets after their death. While that is certainly a part of its function, the Will can help the family in several other ways.

1.  The executor.
First, it names an executor or executrix to administer your estate. By designating such a person, one can avoid having no one take action, and will decrease the time until the estate is closed. Also, the will can specify that the executor serve without posting bond, which can avoid that expense.

2.  Guardians.
The importance of a will becomes very relevant when the family includes minor children and persons with disabilities. The Will can designate who will act as their guardian.

3.  Special needs.
Wills can provide for the special needs of beneficiaries that otherwise would not be recognized as a matter of course. For example, the Will can make special provisions for the care of minors and people with disabilities, either directly or through a testamentary trust (a trust that arises from the Will), including provisions not just for the assets themselves but for the care of the individual beneficiary.

4.  Operation of assets.
If the estate includes real estate, personal property, or investments, a Will can authorize their operation, sale or maintenance consistent with the best interests of the beneficiaries. This can be important where assets are likely to decline in value over time, or are in a form that is not well suited to the beneficiaries.

5.  Payments.
A Will can authorize the payment of taxes, funeral expenses, and debts, so that they are not a burden on others.

6.  Peace.
The importance of a will that clearly defines your wishes also can help to avoid conflicts among family members. Those kinds of conflicts can be long and bitter, as well as expensive. Helping to avoid them can potentially be a wise and valuable gift.

The way to secure these benefits for your family is to take the time and draw up an appropriate plan. If you have not done so, you may be subject to certain defaults provided by law, which may not match what you would choose and may not best serve your family. Avoid that situation by getting started today.

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Windy City Legal assists clients in Chicago with real estate, business law, and asset protection matters.

Basic Asset Protection: Three Things That Can Save You Thousands

Basic Asset Protection: Three Things That Can Save You Thousands

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Life can change quickly and without notice.  While we hope it is for the better, one can take steps in the event the news is of an accident or illness.  There are at least three very basic documents that you should have in place for asset protection, so that your choices can be carried out if you are not able to articulate them.

1. The power of attorney for property.
This document allows a trusted person that you designate to act as your agent if you can not act for yourself with respect to  business and financial affairs. Some examples of this include attending to business and monetary transactions, maintaining accounts and operating property, such as for rental purposes. In a period of unexpected disability, your agent can assist in keeping these sorts of affairs in order.

2. The power of attorney for healthcare.
As the name implies, this document allows a trusted person that you designate to act as your agent if you can not act for yourself  with respect to healthcare decisions.  Among other things, it allows you to designate what care you would want and what you would not  accept.  And it allows you to specify whether the length or the quality of life is your primary objective.

3. The living will.
This document, in the event of terminal illness or incurable injury, allows a doctor to withdraw life-sustaining measures that are  artificially postponing death and instead administer measures to maximize comfort. The purpose is to articulate a choice to avoid being trapped in a painful situation prolonged indefinitely.

The savings.
The law provides certain defaults, but they may not be the ones you would choose. Getting relief once an emergency or disability has  already occurred can involve a long trek through the courts, resulting both in legal costs as well as the health care or financial costs affiliated with maintaining the status quo. And should a disaster hit, these costs can quickly rise into the thousands.

Clearly, these documents preserve values that can be deeply personal.  Whatever one’s choices, it is important to declare them rather than let the default choices provided by state law prevail.

For personal estate planning, the Will, rather than the documents above, comes to mind for many people. The Will is certainly an  important part of every estate plan, but it does not become operative until the person who executed it has died.  Powers of attorney and a living will protect your interests and choices while you are alive. If you do not have them in place, then make an appointment today to secure your future.

Can I transfer my property into an LLC?

Can I transfer my property into an LLC?

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Many landowners and real estate investors recognize that holding property in a limited liability company can offer certain asset protection benefits. When are they attainable?

If the property is mortgaged, then it probably can not be transferred to an LLC. Mortgages often contain provisions restricting such transfers, and the LLC is considered to be a separate legal entity. A mortgage secures the borrowed money with the real estate, and lenders typically do not want their collateral to be transferred away to a third party.

If the property is owned free and clear of any loans, then it may be able to be transferred. Liens, judgments, and pending litigation may inhibit the transfer, however.

Assuming there are no encumbrances, one would need a properly formed entity and appropriate documents to effectuate the transfer. The transfer itself is tax-exempt, but the local municipality’s requirements must be met. Without the necessary approvals, the deed can not be recorded to complete the transfer.

In Chicago, these requirements include a certification from the Water Department, and for smaller buildings, the Zoning Department as well. Some municipalities also impose an inspection requirement, or other mandates. Also, some condominium and homeowner associations require notice or fees to approve the transfer. We can help you identify and fulfill these requirements.

When the transfer is completed, the LLC would own the property, placing a level of protection between the assets of the owners of the LLC, and any liabilities generated by owning and operating the property.

If you currently own or are thinking about acquiring rental property or vacant land, call us today to see if you are able to implement an LLC or other asset protection strategy.

Four ways an attorney can make life easier when selling a property

Four ways an attorney can make life easier when selling a property

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Real estate transactions are formal undertakings. There are technical requirements at every step of the way, and the cost of having a real estate attorney take care of them is nothing compared to the costs of failing to do so. Here are four ways an attorney can improve the experience.

1. Preliminary questions
If you have questions about the contract or the property, you may contact your attorney before accepting an offer, or perhaps even before listing. There are a couple of real estate contracts commonly used in Chicago, but carry different implications depending on which form is presented and how it is filled out. The attorney can explain the differences to assist you in evaluating each offer.

2. Attorney review
The Seller accepts the Buyer’s offer by signing the contract and returning it to the Buyer. Unlike a typical contract in business, the contracts most commonly used in Chicago contain an Attorney Review Period for the first few days after the Seller’s acceptance of the offer. During those few days, the attorneys for each party can review the contract terms, and in some cases change or add terms.

This can be very useful to customize the contract to address any special situations or exclusions that you want either in or out of the deal. After those first few days, the ability to do this disappears. Therefore, it is to your advantage to have identified your attorney earlier in the process so that he can go to work immediately once you accept the offer.

Buyers frequently take advantage of the Attorney Review Period and request changes to the contracts. For the sale to go forward, the changes they request should be negotiated and agreed. A Seller who does not have an attorney to review the changes puts himself at risk. Some requests may be routine, but others may have significant legal ramifications – even if they sound innocent.

3. Managing the transaction
During the pendency of the contract, the Seller’s attorney is the main point of contact in addressing any issues raised by the Buyer’s side. He also coordinates the production of documents owed to the Buyer and other mechanics of the transaction. By taking care of these items, the attorney can keep the transaction on track and free you to focus on other things – including any move from the property.

4. Completion
As the closing gets near, the Seller’s attorney prepares the documents to complete the transaction. Legal and regulatory requirements have changed over time, often adding new levels of requirements and paperwork. The attorney will help the Seller cut through them and get over the finish line.

Trying to sell a property with pending code violations?

Trying to sell a property with pending code violations?

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If a building has decayed, and the owner is unable to maintain it for whatever reason, sometimes building code problems begin to arise.  When money is tight, some have asked whether it is possible to sell a building with building code violations.

Yes, under certain circumstances.  Here are some points to keep in mind:

  1. Identify the work that needs to be done, and the cost.  That will provide important information for the sale process.
  2. The nature of the violations and any litigation must be disclosed to the buyer.
  3. The market will price in the cost of the repairs, so the sales price will be less than a building in good condition.
  4. The target market is smaller – it is limited to investors rather than owner-occupants that have the financial and operational resources to renovate the building.
  5. Conditions deemed dangerous and hazardous still need attention, because they are a liability risk.

If you are contemplating such a sale, talk to us.  We can help you to prepare the necessary disclosures. Also, some form contracts, including those commonly used for residential real estate in and around Chicago, contain language that no violations exist.  That language can be adjusted so that it suits the situation.

Simultaneously, we can follow any court hearings on the building code complaint.  A pending sale does not automatically result in the dismissal of a pending building code case.  It is important to follow up in court after the sale, to stop any more liability from accruing.

In these kinds of situations, it is important both to accomplish the sale, and to establish a definite break from further involvement or liability with the property.

Why did my property tax bill spike?

Why did my property tax bill spike?

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First, when purchasing property, the Seller typically credits the Buyer at closing for prorated taxes attributable to the number of days the Seller held the property.  Taxes are paid the year after they accrue, so the Buyer will be responsible for paying the full amount of the tax bill when it comes due.  If the Buyer is obtaining a mortgage, the lender may require an escrow for the taxes that have accumulated.

After closing, the Buyer should pay attention to any tax exemptions that may be available, and apply for them when appropriate.  For example, the Homeowner Exemption requires the Buyer to certify that either the Buyer or the Seller resided in the home on January 1 of the year of the application.  If the Seller lived elsewhere, or the owner is a bank or corporate entity, or if the property is new construction, that condition may not be met until the calendar year after the real estate transaction is closed and the Buyer moves in.

In Cook County, property tax bills are issued in two installments.  The first installment usually tracks the second installment bill from the prior year.  The second installment bill also is when the exemptions typically are applied.

The underlying value of the property is subject to a new assessment every three years, sometimes referred to as the triennial reassessment.  A change in the assessed value can cause a jump in the tax bill.  The amount of tax also depends on the local tax rate and equalization factors, changes to which also can impact the amount taxed from year to year.  Legislation increasing tax rates also can result in a higher tax bill.

Property owners have a right to appeal an assessed value after receiving notice of the reassessment, or other increase in the tax bill.  The appeal window usually is very short, however, so it is imperative to act immediately.