Perlin Estate Planning

How Does the IRS Treat My Out-of-State Vacation Home, When I Pass it to my Kids at Death?

“The basis of property is primarily an income tax term and is important for determining gain or loss on the sale of property, or, for example, the amount of depreciation that can be taken.”

It’s not uncommon for a family to have a cabin or vacation home in another state. It’s also not uncommon for the parent and owner of that vacation home to ask if the out-of-state vacation home receives a step-up in basis, when his or her children inherit it.

The IRS says that to determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:

• The fair market value (FMV) of the property on the date of the decedent's death.
• The FMV of the property on the alternate valuation date, if the executor of the estate chooses to use the alternate valuation.

They refer to the Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The IRS suggests that for information on the FMV of inherited property on the date of the decedent’s death, you should contact the executor of the decedent’s estate. The agency also notes that in 2015 Congress passed a new law that, under certain circumstances, requires an executor to provide a statement identifying the FMV of certain inherited property to the individual receiving that property.

When a person passes away, the property he or she owns or controls, like what’s included in their taxable estate, will be valued as of the date of death. Children who inherit the property will take the property or asset with the date of death value as his or her basis.

The step-up in basis doesn’t depend on whether or not you pay state or federal estate or inheritance tax on the property.  However, if you file a federal estate tax return, the value of the property reported on the return must be the same as the value reported by the children for the property as their basis in reportable transactions.

If a person only owns part of the real property at his or her death, it’s possible only that portion will get a step-up in basis.

With the owner living out-of-state, it’s important that the owner and the heirs understand the so-called "exit tax." For example, when New Jersey residents sell their homes and prepare to move out of state, they must pay a standard tax rate on the profit from the sale. This tax must be paid when you move, not when you’d usually file a state income tax return.

Reference: nj.com (July 24, 2018) “Cost Basis for and Inherited Vacation Home”

New Laws for Reverse Mortgages in New York

“Budget legislation recently signed by the Governor introduced an important new pre-foreclosure notice specifically addressing defaults triggering reverse mortgage foreclosures affecting senior homeowners, while also making a technical fix to changes governing pre-foreclosure notices and settlement conferences for reverse mortgages that were signed into law in 2017.”

Reverse mortgages are loans that allow homeowners aged 62 and older to use their home equity, while remaining in their homes. It can be an important resource for seniors who don’t have enough income to cover their living expenses, explains New York Law Journal in the article, “Residential Foreclosures: Reverse Mortgage Foreclosure Protections.”

There’s been a spike in reverse mortgage foreclosures, many triggered by “property charge” defaults that could be resolved, if the default is brought to the borrower’s attention. However, reverse mortgages had been excluded from New York’s pre-foreclosure 90-day notices and mandatory settlement conferences.

The new legislation in New York now provides for a special pre-foreclosure notice to be used just for reverse mortgages. The notice gives detailed information about the asserted reverse mortgage default and discloses basic information to reverse mortgage borrowers at risk of foreclosure, along with the other information provided to conventional mortgage borrowers. It also has a list of possible grounds for a lender’s assertion of a default specific to reverse mortgages.

The new reverse mortgage-specific notice lists the following possible claimed defaults that can trigger a reverse mortgage foreclosure:

• failure to occupy the home as a principal residence;
• failure to submit required annual certificate of occupancy;
• death of the named borrower;
• failure to pay property taxes (with a requirement to detail property taxes advanced by the mortgage servicer);
• failure to maintain homeowner’s insurance (with a requirement to detail any insurance procured and paid for by the mortgage servicer);
• failure to pay water or sewer charges (with a requirement to detail any such charges advanced by the mortgage servicer); and
• failure to make required home repairs.

Similar to the 90-day notices for conventional mortgages, the new law also requires a lender asserting a default based on failure to pay property taxes, water and sewer charges, or to maintain homeowner’s insurance, to specify that the homeowner can cure the alleged default by making a specified payment.

The notice gives senior homeowners additional important information, like the right to dispute the asserted default by contacting the servicer; the availability of possible grants, loans or repayment plans that may permit homeowners to cure defaults on property charges; and programs available to permit non-borrowing spouses to remain in their homes following the borrower’s death and extensions available for seniors over 80 with long-term illnesses.

Reference: New York Law Journal (May 11, 2018) “Residential Foreclosures: Reverse Mortgage Foreclosure Protections”

Should My Parents Give Me Title to All of Their Property Before They Die?

“There's a big difference between gifted and inherited assets, and it could cost you in taxes.”

What if parents at retirement age, insist on transferring their assets under their children’s name to avoid estate taxes when they pass away? If they have a primary home, an investment property, and savings accounts that total south of $1 million, are there really any tax advantages to making the changes?

nj.com’s recent article, “This estate planning mistake could mean huge tax bill,” cautions against these drastic moves. These transfers have serious tax consequences, and most of them are not good.

Seniors frequently transfer assets to their children to be eligible for Medicaid, avoid probate, and eliminate estate and inheritance taxes. In New Jersey, until this year, residents were potentially subject to three taxes at death: the federal estate tax, the New Jersey inheritance tax, and the New Jersey estate tax. In 2016, and for the 15 years before that, the New Jersey estate tax was imposed on transfers to children, only if the total estate exceeded $675,000. In 2017, that amount was increased to $2 million. Beginning in in 2018, the New Jersey estate tax was repealed.

There is also the inheritance tax in New Jersey, which wasn’t repealed. That tax is only imposed upon inheritances by individuals other than “Class A” beneficiaries. A spouse, child, grandchild, and parent all qualify as “Class A' beneficiaries.” If the child in this example inherits those assets from his parents, there would be no New Jersey inheritance tax. The federal estate tax is not an issue, because it doesn’t apply until an estate exceeds $11.8 million (or $22.36 million for a couple).

There could be significant harm in making the transfers now rather than waiting for the parents’ deaths. The tax basis of any asset held until death, is stepped-up to fair market value. Therefore, if the parents owned the property for many years, paid significantly less than it is worth today, and the building has been completely depreciated, then their tax basis is probably significantly lower than the fair market value.  However, if it were sold today, there would be a significant capital gains tax to be paid. That’s the difference between the sales proceeds received and the owners’ tax basis.

If parents gift the property to the children during their lifetimes, then the kids take the property with a carry-over basis—they’d have the same basis the parents had and would have the same capital gains tax due when sold. However, if the parents hold on to the investment property until their deaths, the children inherit the property with a stepped-up basis. The children could sell the property the next day and completely avoid any capital gains tax. Another option is to hold on to the property after the parents' death and begin to depreciate the building again to decrease any taxes the kids would pay on any rental income. It works the same way for the parents’ primary residence.

Don’t allow parents to make these kinds of decisions, without speaking to an experienced estate planning attorney in your state. They will know the long and short-term tax consequences and help the family plan properly.

Reference: nj.com (April 10, 2018) “This estate planning mistake could mean huge tax bill”

Real Property Considerations in Estate Planning

As this recent article from The Real Deal Los Angeles points out, an important aspect of estate planning is planning for the disposition of your real property.  While many individuals choose to pass on their real property to their descendants upon their death, depending on your desires and taking into account your financial situation, it may be more practical to make a property transfer prior to your passing. 

What are some of the reasons that it may make sense to pass on your property prior to your passing?

• Medicaid Planning – If your house has significant value, even if you reside in Florida and have declared your property homestead, your homestead may be counted toward your assets. Although the house is an exempt asset, the sale of the house may preclude you from receiving Medicaid.  Thus, for Medicaid planning purposes, a transfer of your home ownership may make financial sense.
• Probate Avoidance – If proper plans aren’t made for the disposition of your property prior to your passing, it may land your relatives in the public and onerous court process known as probate.  However, through the preparation of a simple deed called an Enhanced Life Estate Deed (more commonly known as a Lady Bird Deed), you can avoid probate while still retaining the right to remain in your home until your passing.  A huge plus for everyone involved!
• Property Values – Live in an area where property values are currently at their peak? For the right offer, most people feel they’d be foolish to say no to the sale of their home.  So before saying no for fear of having to move late in life, consider that some buyers may be willing to permit the seller to remain in the home for the remainder of their lives.  With that being the case, the current sale of your home may not sound so unappealing. 

Ultimately, many reasons exist as to why individuals may choose to sell their homes prior to their passing.  If you are currently a homeowner considering these matters, give me a call so we can discuss further.  Every situation is different, so let’s sit down and discuss your personal needs and what may be the best course of action for you.  Give me a call today!

Review Your Tax Returns for Ideas on Improving Your Finances in South Florida

“When it comes to ideas for improving finances, your latest tax return can be a gold mine.”

You can use the details on Form 1040 to spark discussions about much more than tax planning with your estate planning attorney, says CNBC, in “Use your tax return for more than paying taxes.”

Lines 1-5 (Filing status). If you need to check a different box for your filing status, you should review your estate plan. If you get married or divorced, you'll need to update your will and the beneficiaries for life insurance and retirement plans.

Line 6c (Dependents). An increase in the number of dependents is a good reason to update your estate plan. This might mean a change to your cash flow for college savings and insurance needs.

Line 7 (Wages, salaries, tips, etc.). Take a look at your W-2s to see if you're making the most of workplace benefits. For instance, employees can benefit from boosting pre-tax retirement contributions, and those with children may be missing the opportunity to contribute to a pre-tax account for dependent care expenses.

Line 11 (Alimony). This is considered earned income, so consider using some of it to bolster retirement savings by contributing to an IRA.

Line 12 (Business income). If your business has become more profitable, look at whether a sole proprietorship is still the best business structure. There may be significant tax and liability considerations that suit your growing company.

Line 13 (Capital gains). Your capital gains and the details on your Schedule D can say a lot about how you are investing. If the numbers are too high or too low, it could mean you need to reexamine whether the investments and diversification are appropriate for your age and acceptable risk levels. You may have some missed opportunities to offset capital gains with capital losses.

Line 17 (Rental real estate). If you're buying property, think about the best way to hold ownership.

Line 28 (Self-employed SEP, SIMPLE and more). If you're a Schedule C or F worker, a zero on line 28 may be a missed opportunity to increase your retirement savings.

Line 40 (Itemized deductions). A look at these line items may help determine if you need to make any changes to maximize deductions.

Do you live in South Florida? Now is a perfect time to look at your completed 2015 Federal tax returns to determine how you can improve your finances-- now, in retirement and potentially for your estate! Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: CNBC (September 28, 2016) “Use your tax return for more than paying taxes”

Changes Made to Reverse Mortgage Process: Big News for South Florida Seniors

“A recent change added two steps to the process of obtaining a reverse mortgage.”

The goal of the change in the reverse mortgage process is to reduce defaults on reverse mortgages by making sure borrowers have the wherewithal to pay property taxes or home insurance.

A recent article in the Houston Chronicle’s, “Mortgage: What reverse mortgage financial assessment means to you,” discusses the steps to determine reverse mortgage eligibility. 

First, conduct an assessment of your finances, especially your credit history and income; then set aside part of the mortgage proceeds (based on that financial assessment) to help cover estimated tax and insurance payments over the expected life of the youngest borrower. These changes are effective for reverse mortgages issued on or after April 27, 2015.

These requirements are designed to decrease the default rate on reverse mortgages. Roughly 12% of reverse mortgages were in technical default in 2014, so borrowers hadn't paid taxes or insurance or both. In addition, borrowers had no proceeds remaining from their reverse mortgages.

A recent 2016 study from Boston College found that the new rules could reduce reverse mortgage default rates by as much as half.

The financial assessment includes an analysis of the borrower's credit history, including any foreclosures, defaults, late mortgage payments, and late payments for property charges. 

Research reveals that a prospective borrowers' credit scores are big predictors of their likelihood to default on reverse mortgages. It examines income from employment, self-employment, Social Security, alimony, child support, military income, pensions and retirement accounts. If the lender sees that the borrower isn't willing or able to make tax and insurance payments, a portion of the mortgage proceeds will then be set aside to cover these future costs.

Do you live in South Florida? Have you been considering a reverse mortgage? Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: Houston Chronicle (Sept. 16, 2016) “Mortgage: What reverse mortgage financial assessment means to you”

Check This Checklist and See What You Need to Do for Your Estate Plan in South Florida

“No matter your age, this estate planning checklist will help you get started on the process.”

People tend to put off estate planning. As a result, they risk dying without leaving their financial affairs in order and handing their heirs a host of potentially significant problems.

The Business Times recently published an article entitled “Use this checklist to get started on your estate planning.” The article discusses some pointers for those averse to buckling down and creating an estate plan.

Create a will if you don’t have one. A 2015 survey found that 54% of Americans ages 55 to 64 and about 70% of Americans ages 45 to 54 don’t have a will in place. A legally valid will could save your heirs from expensive problems with probate.

Add related documents. Depending on your estate planning needs, you may need a trust, durable financial power of attorney and medical powers of attorney, as well as a living will.

Review beneficiary designations. Check your documents and verify the designated beneficiaries. These take priority over the provisions of wills when it comes to retirement accounts, life insurance, and other non-probate assets. 

Make a list of assets and debts. Give your heirs an estate planning organizer so that they can reference it if you pass away. List your real property and personal property assets, as well as real estate you own and its value. Also list personal property items that have a monetary worth. You can also list your bank and brokerage accounts, retirement accounts, other investments and insurance policies. Finally, make a list of your credit card debts, mortgage, home equity line of credit, and any consumer loans.

Consider making gifts to reduce the size of your taxable estate. The lifetime individual federal gift, estate, and generation-skipping tax exclusion amount is unified and is set at $5.45 million for this year. So a married couple can transfer up to $10.9 million tax-free. 

Reduce, communicate and make wise decisions. Consolidate your IRAs and bank accounts to shorten your list, eliminate statements, reduce paperwork and avoid fees. Tell your heirs which causes and charities you value and select a reliable executor. 

Work with an estate planning attorney. Do-it-yourself estate planning is not recommended because there are numerous financial, legal and emotional issues and pitfalls to avoid.

Ok, you’re not a multimillionaire yet. But if you own a business, have a blended family, have a child with special needs, are concerned about dementia or want to pave a smooth road for the loved ones left behind, use this checklist to get going now.

Do you live in South Florida? Sometimes, an impending hurricane can make you realize how important it is to have your affairs in order. Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: The Business Times (Sept. 20, 2016) “Use this checklist to get started on your estate planning”

Divorce After Age 50 and the Impact on Miami, Florida Retirement Plans

“Divorce can be painful emotionally and financially for anyone. But when the split happens later in life, the less time you have to recover from the economic hit. And, far more is at stake.”

There’s an increasing number of older adults who must address this issue. The divorce rate among U.S. adults 50 and older doubled between 1990 and 2010, and about one in four divorces include someone over 50. The data through 2014 found the rates have been about the same in subsequent years.

ABC News’ recent article, “Keeping Some Green in Gray Divorce,” says the reasons for the rise include longer lifespans, more women in the workforce, changing notions about marriage and higher rates of remarriage, which boost your odds of splitting.

Here are some things to consider when divorce suddenly becomes part of your retirement plan. The issues involved in a "gray divorce" are much like those of a divorce at any age, but things like limited working years ahead, complicated assets and adult children may make the process much tougher.

Be sure you have a team of professionals to guide you through the process. This should include an attorney, mediator, financial planner, accountant and a therapist. In a gray divorce, a financial expert is important because you have a lifetime of assets built up. Retirement finances are critical and complex, and you should seek the advice of professionals.

A big issue with an older couple is who gets to keep the family house. You should be receptive to alternatives that will leave you in a better position. Selling a home or choosing other assets in the settlement may give you the income you’ll need in the future. Plus, downsizing can significantly help manage your expenses.

The biggest challenge for individuals going through a gray divorce is making certain that there's enough money to provide a comfortable retirement. Consider and reexamine your options based on the settlement. You might need to delay retirement, return to work, downsize or make other adjustments.

Remember that healthcare can be expensive in retirement. If you’ve been married 10 years or more, you may qualify to receive spousal Social Security benefits.

Make sure you update all the legal agreements and accounts you've set up during the course of your marriage, especially wills, estate plans and beneficiary designations for retirement accounts.

Do you live in South Florida? If you are considering a divorce, or are recently divorced, it's essential, and well worth the cost, to have an estate attorney on your team. Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: ABC News (September 7, 2016) “Keeping Some Green in Gray Divorce”

“I Do” Means Sharing Financial Info Too in Coconut Grove, Kendall and Pinecrest, Florida

“More than 40% of couples recently shared that they don’t know how much their partner earns.”

A sound understanding of your financial status is critical to planning, budgeting and saving toward retirement. Many couples who share their lives together have no idea what their total household income is but still maintain that they regularly have open conversations about their finances. Huh?

Wjbf.com’s article, “9 Questions to consider in planning your financial future,” reports that the Couples Retirement Study by Fidelity Investments revealed that many couples need a better understanding of their joint financial lives. That said, many elect to divide up the tasks of money management, bills, assets and debts. Although a seemingly equitable idea, it can leave one or both without all of the important financial details.

Both partners need to collaborate when it comes to financial planning, money management and decision-making. That means sharing the responsibilities of building and protecting their financial future.

To help with this, here are nine questions to consider when thinking about your financial lives:

1. What’s your philosophy on money? Consider your values and whether you’re a spender or a saver, how you use debt and what the role of money is in your life.
2. What’s our budget? Understand the cost of living and if you are able to save for future goals.
3. What do we own, and what do we owe? Take stock of your collective assets and liabilities—that’s anything that involves money.
4. Do we have an emergency fund? See how much you have and whether it’s titled in both names so you’ll both have ready access if needed.
5. What are our plans for our savings? Determine if you’re funding a college education, buying a cottage on the lake or preparing for retirement. Fix your short- and long-term priorities and save for them as a team.
6. How much will we need to live comfortably in retirement? Think about how each of you envisions the future so that you can plan, save and invest to meet that goal.
7. What are we saving for retirement and where is it located? Keep track of all 401(k)s, IRAs and CDs dedicated to retirement. Also, know the amount you’re contributing and whose name is on each account.
8. Where do we keep our important documents? Make certain estate planning documents are up-to-date and stored in a secure spot—along with tax records, insurance policies and other valuable documents.
9. What will happen when one of us dies? Take the time to do your estate planning—including writing a will, powers of attorney and health care directives—so your family is cared for after the loss of one or both of you.

If you need help answering these questions, sit down with an experienced estate planning attorney.

Do you live in South Florida? Getting married isn't just about exchanging rings and lots of love. It's about exchanging financial information and ensuring a secure future together. Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: wjbf.com (August 24, 2016) “9 Questions to consider in planning your financial future”

Before You Panic and Sell the South Florida Family Home, Talk with an Elder Law Attorney

“Think of a couple in their late 80s with the husband needing nursing home care right away. They own a home and have about $210,000 in the bank. An elder law attorney can help the wife stay in the family home and preserve most of the remaining assets to keep her comfortable, while helping the husband receive Medicaid benefits.”

Let’s look at a difficult but very common scenario where a husband or wife has an immediate need for nursing home care. Unfortunately, the couple is financially unprepared and clueless regarding their options on long-term care. Many times a couple in this situation will think they have no choice but to sell their home to pay for that care. But before they do this, they should consult with an elder law attorney.

The Boston Globe, in its recent article, “Seniors have more options than selling their home,” says that an experienced elder law attorney can be the key to protecting your family’s health and financial well-being. This includes such assets as the family home.

An elder law attorney can show the senior couple that they have options—in most cases, they don’t have to sell their home to pay for emergency long-term care.

A couple’s money is often tied up in their house, so to fund the long-term care, they go ahead and sell it. When they sell it to qualify for Medicaid, which will cover the cost of long-term care, they exhaust the proceeds of the sale—in addition to the rest of their money. This leaves the healthy spouse—who can still live independently—with little in the way of financial security. This outlook can potentially compromise that individual’s health as well.

Before taking any action, talk with an elder law attorney and explore the options that would best meet the family’s needs. It’s critical to plan ahead. An elder law attorney will help you plan for the future to ensure your wishes on housing and health care can be satisfied.

Studies show that 55 percent of Americans die without a will or an estate plan, according to the American Bar Association. An experienced elder law attorney can offer assistance at any stage of a person’s life.

Don’t panic and sell your family home—speak with an elder attorney first to save it.

Do you live in South Florida? Are you thinking about selling your parents home to pay for nursing home care? You may not need to! Call me (305-443-3104) right away for peace of mind. I can help!

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: Boston Globe (August 19, 2016) “Seniors have more options than selling their home”