Legal Update New Year 2017
A. Reverse Mortgage – Beware!
B. Construction Contracts-Change Orders:
C. Revise Your Will?
D. Other Reasons to Update your Estate Planning Documents
A. Reverse Mortgage – Beware!
Stay in your home and receive monthly income, what could be better!
If you are making your financial and estate planning decisions based on late night television ads, you are a fool. A lot of money is spent trying to convince people that reverse mortgages are a wonderful idea because companies that sell them make huge fees but the product is terrible.
I reviewed a reverse mortgage for a client, the maximum guaranteed payout was 62% of the value of the home, even worse the client lost all future equity growth and still had to pay real estate taxes, insurance, and maintenance. One reason the payout is so low is that the salesman’s commission is huge.
Chances are that if a person needs a reverse mortgage they have already made several poor financial decisions or made no plans for retirement, so they are easy targets for commissioned salesmen. The alternatives to a reverse mortgage are as follows:
Sell the house, then buy a smaller home and put the balance of the cash in a safe investment
Rent the home and move somewhere with low rent, so that there is monthly income left over from the monthly rent payments.
Sell the home and reserve a life estate, meaning the homeowner gets immediate cash and can remain in the home indefinitely
Better yet, sell the house to a child, carry a note, payable in monthly installments, and reserve a life estate. You get monthly income and remain in the home.
Rent a portion of the home for monthly income. There are a lot of benefits for single seniors to share a home. Zoning laws would need to be checked regarding this option.
Sell the home, receive 100% of the value and rent an apartment, or rent a room from family or friends.
The one excuse that I hear for not acting on one of the above alternatives is “I want to stay in my home.” It’s time to make a mature decision and face reality that what you “want” is not as important as your financial security.
The bottom line is never sign a reverse mortgage without consulting with an experienced real estate lawyer. Always be present if elderly parents meet with a salesman marketing reverse mortgages. While every reverse mortgage may be slightly different and every salesman tells a good story, never sign one at the initial meeting, think it over and then visit an attorney.
Just because you’ve gotten in the last word doesn’t mean you’ve won the argument.
B. Construction Contracts-Change Orders:
Most people are wise enough to obtain a written contract when an agreement is reached to build a home, remodel a commercial building, or act as a subcontractor for a prime contractor. Everyone knows that this protects both parties. There is no such thing as a “standard” contract so it’s always wise to seek counsel to review the initial contract.
Virtually all construction projects require at least a few changes once the work is started. As a result, most contracts have a clause similar to the following: “Owner, without invalidating this Agreement, may order changes in the Work consisting of additions, deletions or modifications, the contract price and completion date being adjusted accordingly. Any changes in the Work must be authorized by written change order signed by the Owner and Contractor.” Many cases handled by Andersohn Law Office, PC are a result of the parties not entering into written change orders. Often time parties were in a hurry and requested changes on the spot agreeing to “take care of the paper work later.”
The result is that the homeowner gets over charged or the subcontractor never gets paid, as they violated the contract.
For commercial construction normal recovery in Colorado for an unpaid subcontractor is not a reasonable hourly rate and cost of materials, it is the increased value of the building as a result of the improvements. Often times this is substantially less than the actual cost to complete additional work.
Commercial construction contracts often allow the contractor to demand additional work and establish the price at their discretion. This gives the prime contractor an incentive to plan numerous change orders in advance.
Homeowners and subcontractors should always demand signed change orders.
C. Revise Your Will?
In 2001 a person’s exclusion for federal estate tax was $675,000, meaning any assets in excess of $675,000 would be subject to estate taxes. Many clients with estates over $675,000 wisely executed revocable trusts and wills with A-B Trusts. The intent being that upon a spouse’s death $675,000 would be placed in the B Trust (Family) for the surviving spouse and children. These funds would be managed by a trustee with discretion to limit distributions of principal to the surviving spouse, so that the funds would not be included in the estate of the surviving spouse (i.e. not subject to estate taxes). The balance of the estate would go into the A Trust (Marital). The surviving spouse would have unlimited access to both income and principal in the Marital Trust.
Today, with the federal exclusion at $5.49 million, most people will never pay federal estate taxes, so the need for the Family Trust may not be desirable. A $1.5 million estate with a will written in 2001 will only fund the B Trust (Family Trust), thereby restricting the surviving spouse’s access to funds. Seniors that have A-B Trusts in their older estate planning documents may want to revise them to eliminate the Family Trust or to allow the surviving spouse to decide how much of the estate should be used to fund the Family Trust. There are dozens of issues which must be considered to make this decision. It may be wise to review estate planning documents with a lawyer to determine if they meet your current needs and goals.
Dreams are where you want to go; work is how you get there!
D. Other Reasons to Update your Estate Planning Documents:
If your POA is dated before 2003, it may need to be updated to authorize your agent under HIPAA to obtain your medical records.
If your living will/advanced medical directive is dated before 2009, you may want a new living will. The suggested document now is more detailed and addresses several new issues.