DEAR BOB: I am so grateful to you for your helpful articles and to the newspaper for running them. About a year ago, you wrote about the benefits of holding real estate titles and other major assets in a living trust. I convinced my mother, then 87, to put titles to her Florida vacation condo, her primary house, a timeshare, inherited land in Nebraska, her stock brokerage account, her bank accounts, and a New Jersey commercial building into a living trust. I was named the successor or alternate trustee. The living trust specified that upon her death, the assets were to be sold unless one of the three heirs (myself and two brothers) wanted to buy out the others to keep a specific asset. About three months after transferring the titles into her living trust, she suffered a severe stroke and was unable to effectively communicate. Thanks to the living trust, I was able to lease her empty New Jersey building while she was in a convalescent home, thus providing income for her care. She passed away last February. My brothers and I sold the assets with no problems. I just wanted you to know the living trust asset distribution went as smooth as silk with no probate court hassles in the four states where she owned property – Evelyn G.
DEAR EVELYN: Thank you for sharing that great living trust success story. I am constantly amazed at real estate owners who hesitate to transfer their titles into their living trusts. Some of my fellow lawyers are to blame because they often discourage living trusts. Could they be hoping to eventually receive the probate fees?
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Your situation shows how a successor or alternate living trust trustee can manage the assets after the original owner becomes incapacitated. Equally important, when the trustor dies, a living trust avoids probate proceedings.
That was especially important because your mother owned in real estate in four states. Think of all the grief and expenses she spared you and your brothers. More details are in my special report, “Living Trust Pros and Cons for Avoiding Probate Costs and Delays for Your Heirs,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
EVICT DEADBEAT TENANT FAST
DEAR BOB: I have a friend who owns a rental. The tenants refuse to pay the $1,250 rent each month. But they pay partial rent payments of $350 to $475. What procedure should my friend use to collect the rent? – Anne P.
DEAR ANNE: Your friend should consult a local real estate attorney who specializes in evictions. It is usually a major mistake to accept partial rent payments, especially month after month.
The attorney will review the situation with your friend. If the tenants can’t or won’t pay the full rent, the best solution is to evict as fast as possible to avoid further rent losses.
Then your friend should rent to qualified tenants after checking their rental application references such as prior landlords, employment, and credit report FICO score.
FLORIDA HOMEOWNER IS THANKFUL FOR HOME-EQUITY CREDIT LINE
DEAR BOB: My husband thought you were crazy to frequently advise homeowners to have a home equity credit line for emergencies and opportunities, as you stated. We live in Port Charlotte, Fla. Although ourhouse wasn’t as badly damaged as some, it sustained roof and other damage, which we estimate will cost at least $35,000 to repair. But thanks to you, if the insurance doesn’t pay for all the repairs, we feel secure knowing we have our $125,000 home equity credit line. Last year when we paid the $50 annual bank fee, my husband almost cancelled, saying it was a waste of money. Now he is so glad I insisted on keeping that credit line. Many thanks – Alva B.
DEAR ALVA: Yours is the first letter I received from a victim of hurricane Charley. I’m sorry to learn of the damage but am thankful your home can be repaired.
Situations like yours show why every homeowner and condo owner should have either a home equity credit line or a senior citizen reverse mortgage line of credit to use for an emergency or investment opportunity.
OBTAIN PROFESSSIONAL SURVEY TO DETERMINE TRUE BOUNDARY
DEAR BOB: We have owned and lived in our home for more than 40 years. Our neighbor has lived in his house about 20 years. He just recently told us part of our front yard belongs to him. The original owner planted along a line we always thought was the boundary. No one ever complained before. At age 87, we don’t know what to do? – Walt and Alyce J.
DEAR WALT AND ALYCE: Don’t worry. Please hire a professional surveyor to determine the exact boundaries of your lot.
If you learn the neighbor is correct that he owns part of your front yard, hire a local real estate attorney to perfect a prescriptive easement so you (and future owners of your property) can continue using that portion of his property.
The legal requirements for a prescriptive easement are open (obvious), notorious (not hidden), continuous, and hostile (without permission) use of another’s property for the statutory required number of years, which vary in each state. Payment of property taxes is not required.
The shortest time period is five years in California, but up to 30 years in Texas. It appears you qualify for a prescriptive easement. If an agreement can’t be reached with your neighbor, your real estate attorney might recommend a quiet title lawsuit to permanently perfect your prescriptive easement.
WHY HOUSE GIFT BEFORE DEATH CAN BE EXPENSIVE FOR HEIR
DEAR BOB: I wrote you long ago, but you didn’t use my letter. If an heir plans to stay in the house to be received from an elderly parent, wouldn’t it be better for the parent to gift the house before death? – Bert S.
DEAR BERT: With more than 500 letter and e-mail questions each week, it’s just not possible for every question to get answered in these articles. I try to select the questions with widest interest, such as yours.
As I’ve often said, it is usually better to inherit real estate after the owner’s death than to receive property as a gift before death. The primary reason is an heir receives a new stepped-up basis of market value on the date of the decedent’s death.
If a gift deed is received while the owner is alive, the donee takes over the donor’s usually low adjusted cost basis.
For example, suppose your parent owns a house now worth $300,000 for which the parent paid $100,000. If your parent gives you a gift deed to that house, your adjusted cost basis is $100,000. When you eventually sell it, you will have a substantial capital gain.
However, if you instead inherit that house after your parent dies, your new stepped-up basis is the $300,000 market value, thus greatly reducing or eliminating your capital gain tax when you sell. For more details, please consult your tax adviser.
BUYING FORECLOSURE HOUSES USUALLY ISN’T FOR BEGINNERS
DEAR BOB: I am 24 and want to buy my first home real soon. While researching, I came across foreclosure houses that have recorded notices of mortgage default. If I pay the entire mortgage loan balance, will the property become mine free and clear? What are the pros and cons of buying foreclosure properties? – Thad D.
DEAR THAD: Congratulations on wanting to buy your first home at 24. I was a ripe old 27 when I bought my first home for a $5,000 down payment borrowed from my parents (which I repaid).
Buying homes in the foreclosure process usually isn’t a good idea for beginner home buyers because of possible complications.
There are three foreclosure acquisition opportunities: (1) buy from the defaulting homeowner and cure the default to reinstate the mortgage; (2) purchase at the foreclosure auction for cash; or (3) if there were no auction bidders, buy after the sale from the foreclosing lender who took title to the home.
Foreclosure buyers purchase “subject to” senior liens, such as unpaid property taxes. If you buy direct from the defaulting borrower before the auction, you also must pay any junior liens, such as a second mortgage. The foreclosure cash sale wipes out junior liens, but not senior liens.
However, buying from the foreclosing lender after the auction, if there were no foreclosure sale bidders, often results in easy financing. But most lenders usually mark the price up to full market value. More details are in my special report, “Pros and Cons of Earning Big Profits from Foreclosures and Bargain Distress Properties,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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