DEAR BENNY: My aunt, age 83, has no other living relatives than my sister, my two brothers and me. She is completely reluctant to make out any of these documents: a last will and testament, a durable power of attorney, a power of attorney for health, a living will (advanced health-care directive) and a power of attorney for financial matters. I believe she should have them all. Could you tell me the consequences of not having each one of these? I’m fearful that when she fails, or is debilitated, it will make it even more difficult for us to do the right thing. Maybe, if she sees your answer, it will get her to make a decision. –Eileen
DEAR EILEEN: You can lead the horse to water, but you can’t make it drink. You can make recommendations to your aunt, but only she — assuming she is competent — can make the final decision.
Let’s take each document:
- Will: If your aunt dies without a last will and testament, the laws in your state (called "intestacy") will dictate how her assets will be distributed. That can lead to family fights, and the distribution may be contrary to her wishes. But unless she reduces her desires into a will, the probate judge will have to be guided by the laws of your state.
- Living Will: We all remember the Florida fight over whether the life support systems for Terri Schiavo should be removed. If your aunt should be determined to be brain-dead, but still alive, her doctors need guidance. In the absence of a living will, they may have to ask the local court for assistance, and this will cost money and may end up wasting your aunt’s assets.
- Durable Powers of Attorney: Once again, should your aunt have a stroke, and not be able to communicate or write, who will make decisions for her? Who will be able to sign checks to pay any of her bills?
Every American should have these documents. Contrary to what many of us believe, we are not invincible.
DEAR BENNY: I recently signed a contract to sell my house. I have changed my mind and do not want to sell. It has been two days. Can I back out? –Holly
DEAR HOLLY: The simple answer is no. There is no cooling off (for buyers or sellers) to back out of legally binding real estate contracts.
You have to determine if indeed there is a valid contract. Did the buyer sign it? Was a good faith earnest money deposited with the real estate agent?
You may want to discuss your situation with an attorney, but the general rule of law is that once a binding contract is entered into, it is difficult — if not impossible — to back out.
You may also want to discuss the situation directly with the buyer. Perhaps the buyer will understand your concerns (assuming that you don’t want to sell it at a higher price) and agree to cancel the contract. The buyer may want some money to compensate for any out-of-pocket expenses he or she may have incurred.
DEAR BENNY: I am the owner of a condo in a small, three-unit building. The other owners and I are managing the expenses. We have been splitting all bills based on unit size, and my share has been the most because my condo is the largest. I’ve requested a review of the expense allocation because I don’t feel all expenses should be based on unit size. We each have separate gas, electric and water meters. Common bills include insurance, fire alarm, fire sprinklers, garbage, bank fees, admin materials, inspections and tools. Which expenses are typically based on unit size and which should be evenly split? –John
DEAR JOHN: You probably will not like my answer, but common-element expenses must be paid in accordance with your percentage interest in the condominium. Typically, at the end of the condominium declaration (one of the legal documents) there will be a listing of all units and the percentage interest that the developer allocated to each unit.
The general law throughout this country is that in order to change these percentage interests, 100 percent of the unit owners must give their approval.
Several years ago, a condominium owner complained that since he lived on the first floor and never used the elevator, he should not be charged for the maintenance and repair of the elevators. This is not the way condominiums work. Whether or not you read your condo documents before you bought your unit, you are legally obligated to comply with the terms and conditions imposed by those documents. You must pay your percentage interest for all common-element expenses.
DEAR BENNY: This happened to a friend of mine. A condo listed for $725,000. He offered $650,000. The seller countered with $705,000. The same day, my friend countered with $670,000. The seller countered with $697,000. My friend thought about it overnight and decided to look at some different properties. Later that day, his agent called and told him that the seller had now decided to accept his offer of $670,000. Is this legal? What if my friend would have placed an offer on a different property and it was accepted? Doesn’t this give a seller sort of a free bluff? –Dave
DEAR DAVE: It’s a buyer’s market nowadays, and your friend probably got a good deal. The seller obviously wanted to sell and did not want to lose your friend as a buyer.
Who is bluffing? In my opinion, both parties were playing poker, and the seller "blinked" first.
This should be a good lesson for every potential home buyer: Negotiate price with the seller. Typically, the buyer makes an offer and the seller has three choices: accept, counter or reject. If the seller counters, then the buyer has those same three choices.
In good market conditions, buyers were so anxious to get the property that they submitted escalation clauses — "I will go up higher so as to beat any other offers the seller receives."
But when the market slows down — as it is currently — sellers who want to sell will reduce their price so as to go to contract.
You raised an interesting question. If the buyer made an offer that the seller subsequently accepted, unless the buyer withdrew his offer, a strong argument can be made that they have a binding contract — even if the buyer had entered into a contract on another property.
In your case, however, the seller countered the buyer’s $670,000 offer. That counteroffer legally eliminated the buyer’s offer, so had he gone with another property, he would not be liable to this seller.
DEAR BENNY: I’m hearing a lot right now about how owning is more expensive than renting, especially given the recent real estate downturn. But, no one ever discusses the positive tax consequences of owning. I know that for me and my husband, we would be paying close to $20,000 additional income tax to the government each year without the mortgage interest deduction. (We wouldn’t be able to itemize deductions without it.) Am I missing something, or is it just that for many people the mortgage interest doesn’t make as much of a difference in their tax bill? –Alicia
DEAR ALICIA: You have raised a very significant issue: Should you get a mortgage or pay all cash when you buy a house?
I have to disagree with your statement that no one ever discusses the tax consequences of ownership. On the contrary, most of the columnists — and all of the mortgage lenders — tout the tax benefits of being able to deduct your mortgage interest when you file your annual income tax return.
In fact, I believe the opposite is the case — rarely do I read about the benefits of paying cash for your house.
And perhaps that is because in my opinion, it does not make sense to own your house free and clear — unless you have enough money stashed away and are comfortable that you will be able to financially cope with emergencies that may arise in the future. As I have often written, you do not want to be "house rich and cash poor."
Let’s face it, however. If, for example, you are in the 28 percent tax bracket, for every dollar that you pay in interest to your mortgage lender, only 28 cents is deductible; the remaining 72 cents is just coming out of your pocket.
But, as you suggest, if you did not have this deduction you would not be able to itemize. Clearly, that’s one clear advantage.
Perhaps the most significant advantage, in my opinion, is that the money that you have invested in your house is just "dead equity." If your house appreciates in value, it would do so regardless of the amount of your equity. If your house depreciates, the equity is also going to go down.
Why not use this cash for other purposes? Travel, buy furniture, or just put it in a safe, insured investment for that rainy day?
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to firstname.lastname@example.org.
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