Even thirtysomethings need living trusts

Untimely death means major assets must be probated

By Robert J. Bruss
Inman News

DEAR BOB: My 31-year-old niece died recently without a will. She purchased a condominium about three months ago. Can her mom now sell the condo, or does she have to do something else first? --Georgia Z.

DEAR GEORGIA: Unfortunately, because your niece died intestate without a will or a revocable living trust, her condo and other major assets will have to be "probated." That means the local probate court will determine who inherits her assets.

If her mother is her closest living relative, the state law of intestate succession will probably give the assets to the mother after all debts are paid.

Before the mother can sell the condo, she first must receive the title transferred to her name by the probate court. Depending on the state where the condo is located and the local court backlog, this can take six to 12 months, sometimes longer. The mother should consult a local probate attorney.

This sad and potentially costly situation could have been avoided if your niece held title to her condo and other major assets in her revocable living trust. If that had been done, probate costs and delays would be avoided. The named successor trustee (presumably her mother) could then have transferred title according to the terms of the living trust. More details are in my special report, "24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays," available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

BIG POTENTIAL PROBLEMS WITH HOME SELLER'S REMORSE

DEAR BOB: I recently put my house up for sale. I received a purchase offer from a buyer and we agreed on closing the sale. But due to job-related issues, I am no longer willing to move and do not want to close the sale. Can I get out of this agreed purchase offer without selling my home? --Tim S.

DEAR TIM: Home seller's remorse can be a very expensive disease for a home seller. Presuming there are no loopholes in the sales contract for you to cancel the sale, if your buyer really wants to own your house he can sue you in a specific performance lawsuit.

He will probably record a "lis pendens" against your title to effectively prevent you from selling to another buyer or refinancing the mortgage.

If there was a listing agent or a buyer's agent, even if you can get the buyer to cancel the sale, you may still owe a sales commission because a ready, willing and able buyer was found by the agent.

Be sure to consult the agent(s) to learn if you will have to pay a sales commission even if no sale takes place. For more details, please consult a local real estate attorney.

TAX-DEFERRED EXCHANGE DOESN'T APPLY TO PERSONAL HOME

DEAR BOB: Can a Starker tax-deferred exchange be used on a primary residence? I find myself moving often within the same town. My next move will be within less than 24 months. I am always moving up in value and equity. --Eric G.

DEAR ERIC: Sorry, an Internal Revenue Code 1031 tax-deferred exchange applies only to real estate held for investment or use in a trade or business, such as a rental house. Your personal residences won't qualify.

However, if you own and occupy your principal residence at least 24 of the last 60 months before selling, then Internal Revenue Code 121 applies and you can claim up to $250,000 tax-free capital gains (up to $500,000 for a married couple where both spouses meet the occupancy test).

You could be entitled to a partial IRC 121 exemption if the sale is due to health reasons, job location change qualifying for the moving expense tax deduction, or unforeseen circumstances. For full details, please consult your tax adviser.

HOW A JOINT TENANT PARTIALLY BROKE UP A JOINT TENANCY

DEAR BOB: My husband and I together with a third party owned a house under joint tenancy with right of survivorship. The third party married and quitclaimed his one-third share into a revocable living trust. The third party died a year ago. The quitclaim deed was recorded, but I do not believe the deed was changed. Has the joint tenancy been broken if a new deed was not recorded? --Donna L.

DEAR DONNA: Unless the house is located in one of the few states that require issuing a new deed each time title is transferred, the recorded quitclaim deed from the joint tenant to his living trust transferred his one-third share. The other two-thirds remain undisturbed as joint tenants. Nothing further is required.

The one-third share that was held in the deceased's living trust may now be distributed according to the terms of the deceased's living trust.

Transfer of a joint tenant's interest in a property does not require the consent of the other joint tenants. For full details, please consult a local real estate attorney.

NO STEPPED-UP BASIS IF WIDOW DIDN'T INHERIT ANYTHING

DEAR BOB: Does a widow get a new stepped-up basis on a home where the title was only in her name? Her husband died in 2005 but was not on the title because of his poor credit. --David F.

DEAR DAVID: Sorry, but the widow didn't inherit anything. To obtain a new stepped-up basis for the asset's market value on the date of the decedent's death, there must be an inherited asset. Therefore, the widow doesn't get a new stepped-up basis. She should consult her tax adviser for full details.

WHEN SELLING HOME, ALLOW EXTRA TIME TO PAY OFF IRS TAX LIEN

DEAR BOB: We are in the process of prepping our home for sale. We have an IRS tax lien on which we are making monthly payments. Will the tax lien have to be paid off before we list our home for sale, or can we pay the lien off when we pay off the mortgage at the closing? --Candace P.

DEAR CANDACE: You can list your home for sale with a real estate agent while the IRS lien remains on your title. However, be sure to disclose the situation to the listing agent. Explain you plan to pay off the IRS lien from the sales proceeds when the home sale closes.

The IRS tax lien must be paid off at or before the closing so you can deliver marketable title to your buyer. Be sure to allow extra time so the IRS can receive your final payment and remove the lien from your title.

Consult the firm that you expect to handle the closing of the sale now for details on the extra time needed because the IRS is not known for speedy service.

IS HOME SELLER'S WRITTEN DISCLOSURE LEGALLY BINDING?

DEAR BOB: How legally binding is a home seller's disclosure statement? I have a statement that says all major systems are in working order. This is not the case. --Dave R.

DEAR DAVE: If you can prove the home seller knew of a significant property defect but failed to disclose it to you before you bought the house, the seller may be liable to you for the cost of repairs.

However, your difficulties will be (a) proving the seller knew of the undisclosed defect; (b) obtaining a court judgment (presuming the seller denies knowledge of the defect); and (c) collecting on that judgment from the seller.

If the defect is not expensive to repair, after sending a written demand letter to the seller setting a deadline for the seller to make repairs at his expense, rather than hiring a real estate attorney you might consider taking the seller to the local small claims court.

CAN CONDO BUYER TAKE OVER THE MORTGAGE PAYMENTS?

DEAR BOB: My partner and I own a condo located on a golf course. We bought it two years ago for $275,000 and are presently renting it for $1,400 per month. With property taxes and other fees, we have a $700-per-month negative cash flow. We are both retired and this is becoming a burden. If we sell, after paying a sales commission and because property values have dropped in our area, we would probably wind up with about $234,000, which is approximately our mortgage balance. Are there any companies that would buy our mortgage for what we owe? --Robert T.

DEAR ROBERT: Nobody buys an existing mortgage for its balance because there's no profit.

What I think you are asking is can the condo be sold to someone who will take over your mortgage payments? Your tenant is the obvious logical buyer. Have you asked him?

Be sure to get the mortgage lender's permission for the buyer to take over payments. In today's home-sale market, the lender would be crazy not to approve a mortgage takeover by a creditworthy buyer.

www.LagretRealEstate.com