Posted by & filed under Estate planning, taxes.


“Am I Prepared for the New Tax Law?

The new Tax Plan recently signed into law affects many homeowners, especially those that have a home equity line-of-credit (HELOC). HELOC loans are very popular among homeowners due to their low-interest rates and the option of deducting your interest payments in your taxes. Things are a little different now, but how different are they for you?


What is a Home Equity Line of Credit (HELOC)?

Home Equity Line of Credit or better known as HELOC (pronounced HE-lock) acts like a credit card: It has a credit limit you can borrow against, pay all or part of the balance, and borrow again up to the credit limit. The interest rate varies with the prime rate. Essentially, it’s still a loan but the only difference is that the interest rate is lower than all other types of loans because borrowers are required to use their home as collateral. According to Bankrate, “The first 5 or 10 years of a HELOC (the period varies by lender) are known as the draw period. During the draw period, you may borrow from the HELOC and the minimum monthly payments are interest only. After the draw period expires, the repayment period begins. Usually the repayment period lasts 20 years.” HELOC loans have been a very popular means for our clients to self-fund their long term care costs, such as paying for assisted living.


How Do the New Tax Laws Affect HELOC?

 

  • You Can no Longer Spend HELOC Loans on Anything and Everything

 

Not so long ago, homeowners were allowed to obtain a HELOC loan and not be limited to what they used the money for. According to a 2007 U.S Census report, “In the past, people would take out home equity loans to make renovations (45 percent), pay off their debts (26 percent), buy a car (9 percent), or pay for medical emergency/tuition (4 percent). As we can see, more than half of the homeowners in 2007 used their HELOC loan for something other than house renovation. This is called “Home Equity Indebtedness.” Unfortunately, due to Section 11043 of the new tax law, these type of HELOC loans are no longer eligible for interest tax-deduction, according to the Washington Post.

 

  • HELOC Loan Interest is No Longer Tax-Deductible

 

There are two types of HELOC loans, one was mentioned previously “Home Equity Indebtedness” and the other is “Acquisition Indebtedness.” As mentioned before, Home Equity Indebtedness interest will no longer be tax-deductible for homeowners, no exception. Meaning that if you obtained a “Home Equity Indebtedness” loan before the new law, you would still be subject to the new law and would no longer be able to tax-deduct your loan interest.

On the other hand, if you obtained an “Acquisition Indebtedness” loan, meaning that you can ONLY use the loan to acquire, build or substantially improve the residence, then you would be able to tax-deduct your loan’s interest. According to The Orange County Register, as long as all other terms are not violated, tax-deduction is still an option for  “Acquisition Indebtedness” HELOC loans.

 

  • Mortgage Debt Limit Has Dropped from $1.1M to $750K

 

According to CNBC under the bill homeowners who purchased a house before Dec. 15 of this year will be able to continue deducting the interest they pay on mortgage debt of up to $1 million. For purchases after that date, the cap drops to $750,000. That amount of mortgage debt can be for a primary or secondary residence (i.e., a vacation house). Earlier versions of the bill would have eliminated the tax break for second homes. This is for all total acquisition mortgage debt combined (i.e a split first mortgage and a HELOC).

 

  • Are you Asking “Am I Prepared for the New Tax Law?”

 

We know that everyone is unique and might have different situations. That’s why we encourage you to ask questions of your CPA if you have any concerns about your HELOC or other mortgages. If you don’t have a CPA, please contact us so at (925) 757-4605 so that we can refer you to an excellent local CPA to answer all of your tax questions.


Sources
  1. Bankrate
https://www.bankrate.com/finance/topic/heloc.aspx
  1. CNBC, Sarah O’Brien
https://www.cnbc.com/2017/12/20/here-are-the-finalize.html
  1. The Orange County Register, JEFF LAZERSON
https://www.ocregister.com/2017/12/28/heloc-loans-might-still-be-deductible-under-new-tax-plan/
  1. Forbes, Nick Clements
https://www.forbes.com/sites/nickclements/2017/12/28/borrowers-lose-home-equity-tax-deduction/#3c54f5676cdf
  1. MarketPlace, Jana Kasperkevic
https://www.marketplace.org/2017/12/22/business/tax-bill-2017/tax-reform-home-equity-interest-deduction-affect.
  1. Census
https://www.census.gov/prod/2007pubs/c2kbr-37.pdf
  1. Washington Post, Kenneth R. Harney
https://www.washingtonpost.com/realestate/did-the-tax-code-overhaul-kill-home-equity-loans/2018/01/16/626f8054-facf-11e7-ad8c-ecbb62019393_story.html?utm_term=.484075c08a87

Posted by & filed under blog, Estate planning.

Four Tips For Effortless Estate Administration
Being put in charge of a loved one’s estate doesn’t have to be stressful. If you are the executor of an estate or successor trustee of a trust, then you have a legal responsibility to manage the assets of the trust or estate in accordance with both the will/trust and applicable State laws. According to Judy Martel at Bankrate, “The executor’s natural inclination is to “make everyone happy and distribute the assets . . . but if the executor rushes and misses some crucial legal steps, he or she could be found personally liable. This is where having an attorney who knows the rules will help.”

 

Since this can be a difficult task for anyone, here are our Four Tips for Effortless Estate Administration:

One: Locate and Protect All Assets


According to Foxbusiness The very first thing an Estate Executor or Trustee should do is determine, locate, and protect all assets. Assets can be property, artwork, bank accounts, and more. This is most likely the first thing your attorney will ask you for.


Two: Decide Who Gets What


Deciding who gets what is often the most stressful part of this process, because often times people have vested interests in certain things due to nostalgia, or value. Bankrate says It’s important to remain impartial to all parties involved and follow the guidelines of any wills or trusts. Identify and inventory the decedent’s property, and have that property appraised, Pay debts and taxes, and Distribute the remaining property according to the terms of the Will or Trust.  If there is no Will or Trust you must use your State’s laws of intestate succession (this is usually supervised by the probate Court).


Three: Take Your Time


You don’t have to rush this process. According to HanleyLaw, the Executor’s [or Trustee’s] natural inclination is to “make everyone happy and distribute the assets.” However be sure that while doing this you follow the proper legal guidelines in the proper order. Take everything a step at a time. It’s easy to become daunted by how much there is to be done. Divide everything into small steps, and focus on one step at a time.


Make sure to use due diligence with each step in order to make the entire process go as smoothly as possible. Expect there to be a few hiccups along the way, that’s just a part of the job, and prepare accordingly.


Four: Seek Professional Advice


You can avoid mistakes by consulting with an estate attorney who is a State Bar Certified Specialist in Estate Planning, Trust & Probate Law.  Your financial advisor and CPA can also provide expertise. We encourage you to reach out to the Law Offices of Joel A. Harris for any Estate Administration needs.

Posted by & filed under Estate planning.

The primary purposes of a Living Trust are to protect your assets from court, taxes, and young or foolish heirs. Trusts can protect the inheritances of problem children and the disabled and also protect their inheritances from lawsuits and creditors.  Trusts can eliminate capital gains taxes, family feuds, and public spectacles.  But to accomplish this, your trust must own your assets.

 

You may be tempted to leave some of your assets out of your trust. Maybe you’ve secretly been hoarding a bank account for a favorite relative, or think that little condo in Hawaii that no one knows about should stay with its current occupant. Or, maybe you’ve just forgotten to include something, no big deal, right? Wrong!

 

Trust me, once you die, there are no secrets.  Uncle Sam or a meticulous family member will find all of your “secret” assets, subjecting them to lengthy and expensive court battles. It’s best to put them all in your trust, list them as trust assets, then clearly state who gets them on your death.

 

Real Estate

Nothing will change by adding your real estate holdings to your trust.  The title will transfer from your name to your trust’s name; with you are trustee.  As you are the owner of the trust, it’s still your property and you still have complete control.  Because a normal living trust is revocable, transferring real estate to your trust should not disturb your current mortgage or property taxes.

 

Property without a Title

Personal belongings like your coin collection, sports memorabilia, jewelry, electronics and art should also become part of your trust so that you can leave binding directions on how they should be allocated. Placing them in the trust ensures your wishes will be unequivocally carried out. This is done by simply assigning these items to the trust, normally as part of your trust asset schedule. A trust should always have a current, signed and dated, asset schedule!

 

Bank and Brokerage Account

The owner of all bank and brokerage accounts should be your Trust if you want to ensure that the funds will be available, upon your incapacity or death, to cover your expenses, then distributed per your wishes.

 

Items You May or Must Leave Out of Your Trust

 

 

Automobiles

In most states, automobiles are exempt from probate and can easily be transferred upon your death, so it’s best to leave title in your name(s) unless they are very valuable and substantially increase the value of your estate.

 

 

Retirement Accounts

For tax purposes, you should normally always name your spouse, then competent adult heirs, as beneficiary of tax deferred accounts, to avoid having these accounts taxed, upon your death. Normally a trust will only be a beneficiary of you have age restricted or handicapped heirs.  Your attorney and financial advisor will assist you with designating the proper IRA beneficiaries.

 

Life Insurance

Life insurance is normally not owned by a revocable living trust, but should almost always name the trust as the primary beneficiary.  Annuities often follow the same rule, but are more complicated, and should be discussed with your financial advisor before naming beneficiaries.

 

Assets You Don’t Own

It’s not uncommon for people to make gifts of assets they don’t own, naming them as gifts in their trust, because they feel that they morally have a right to the asset.  This is usually not recommended.

 

If you have further questions  or need help with your Trust, contact us for a consultation today at 925-757-4605 or email us.