What Every Realtor Needs to Know about Estate Planning & Probate and Selling Homes out of Probate

What Every Realtor Needs to Know about

Probate

Stagnaro, Saba & Patterson, Co., L.P.A.All rights reserved.

Full Service Law Firm◦ Wills, Trusts, Estate Planning & Administration◦ Real Estate◦ Corporate◦ General Litigation

Business Disputes Personal Injury And Medical Malpractice Labor And Employment Law Creditor’s Rights

◦ Real Estate Tax Valuation Appeals

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STAGNARO, SABA & PATERSON

This presentation is offered for informational use only. Nothing in this presentation constitutes legal advice and an attorney-client relationship with either the presenter or Stagnaro, Saba & Patterson, Co. L.P.A. is not created with any member of the audience based solely upon this presentation. Estate planning tips and techniques should be used only after personal consultation as each individual and each situation is different.

Disclaimer

Probate is the judicial process of collecting assets, paying bills and transferring assets.

What Is Probate?

What Is Your Estate?Your Probate Estate

Includes assets in yourname that do not have

abeneficiary

designation,such as:

• Property in Single Name

• Tenants in Common• Community

Property

Your Taxable Estate(May differ from state to federal level)Includes your probateestate + “non-probate” estate such as:

• Life Insurance• Payable on Death• Transfer on Death• Retirement Plans• Revocable Trusts• Joint Property With

Rights of Survivorship

Assets OutsideYour Estate

Includes assets you donot own or control, such as:• Irrevocable Trusts• Irrevocable Life Insurance Trusts (ILITs)• Annual Exclusion Gifts

Probate Process

Provide Notice of Admission

Appoint Executor

File Inventory & Notices

Pay Valid Claims; Deny Others

File Estate Tax Return (s)

File Final & Distributive Account(s)

Executor Released

Admit Will to Probate

◦Can be costly and time-consuming in some states

◦Usually requires attorney’s services

◦Is a public process; No confidentiality

Potential Perils of Probate

• Testate • Original will executed and admitted OR copy of will

admitted after hearing with the original witnesses testifying

• Beneficiaries are those named in the Will• Intestate ORC 2105.06

• No Will• Beneficiaries are those named in the statute

• Summary Administration• Relief from Administration • Full Administration

Types of Probate

• Avoiding probate does NOT avoid creditors or estate taxes.However, Creditors have 6 months from the date of deathto file a claim against a decedent’s estate or next of kin.Even if the Creditor has no notice of the death, once the 6months have passed, their claim is barred as a matter oflaw. Many creditors and collection companies troll theprobate court websites to find out whether a debtor hasdied. If no probate estate is opened, that is one less wayfor a creditor to be aware of the death and subsequently filea valid claim.

Creditors in Probate

• Separate from estate case but still probate court jurisdiction

• Occurs:– Sale is not authorized by the Will or the

decedent dies intestate• Exception: All heirs give consent to sale,

sale price is 80% of the appraised value and no minor is the beneficiary

– A minor is one of the beneficiaries of the real estate• If sole beneficiary, the minor’s guardian

may sell property under ORC 2127.05

Land Sale Cases

• Burdensome for both Executor and Realtor

• The Probate Court plays a major role in setting the price and approving the sale of the property

• MLS listing must contain disclaimer that the sale is subject to court approval

• Real estate can be set for public auction if it does not sell in “reasonable” time

Land Sale Cases Continued

o Right to elect to take against will.o Right to elect to receive mansion house

(primary marital residence) as part of the spouse’s share of an intestate estate.

o Right to remain in the mansion house rent free for up to one year.

o Right to purchase the mansion house and household goods at appraised value.

Rights of Surviving SpouseO.R.C. 2106

(A) If there is no surviving spouse, to the children of the intestate or their lineal descendants, per stirpes;

(B) If there is a spouse and one or more children of the decedent or their lineal descendants surviving, and all of the decedent’s children who survive or have lineal descendants surviving also are children of the surviving spouse, then the whole to the surviving spouse;

(C) If there is a spouse and one child of the decedent or the child’s lineal descendants surviving and the surviving spouse is not the natural or adoptive parent of the decedent’s child, the first twenty thousand dollars plus one-half of the balance of the intestate estate to the spouse and the remainder to the child or the child’s lineal descendants, per stirpes;

(D) If there is a spouse and more than one child or their lineal descendants surviving, the first sixty thousand dollars if the spouse is the natural or adoptive parent of one, but not all, of the children, or the first twenty thousand dollars if the spouse is the natural or adoptive parent of none of the children, plus one-third of the balance of the intestate estate to the spouse and the remainder to the children equally, or to the lineal descendants of any deceased child, per stirpes;

(E) If there are no children or their lineal descendants, then the whole to the surviving spouse;

(F) If there is no spouse and no children or their lineal descendants, to the parents of the intestate equally, or to the surviving parent;

(G) If there is no spouse, no children or their lineal descendants, and no parent surviving, to the brothers and sisters, whether of the whole or of the half blood of the intestate, or their lineal descendants, per stirpes;

Statute of Descent and DistributionO.R.C 2105.06

• Last Will and Testament• Health Care Power of Attorney and

HIPPA Release• Living Will (optional)• Durable Financial Power of Attorney• Revocable Trust• Irrevocable Life Insurance Trust (ILIT)• Assignment(s) of Interest

Common Estate Planning Documents

Testate v. intestate “Simple Wills” and why they aren’t so simple Pourover Wills Wills containing testamentary trusts

◦ Guardianship caveats◦ Probate Court “administration”

Last Will and Testament

Authorizes another person to make health caredecisions for you if you cannot make them foryourself.

• Names an individual you trust to make a wide variety of health care decisions for you at any time you cannot do so for yourself, whether or not your condition is terminal

• Becomes effective only when you cannot make your own decisions regarding treatment

• Requires the person you appoint to make decisions that are consistent with your wishes

• Will not overrule a living will if you have both documents.

Health Care Power of Attorney

Covers use of life-sustaining treatment if youbecome terminally ill or permanently unconscious

– Becomes effective only when you are unable to communicate your wishes and are permanently unconscious

– Gives doctors the directive to follow your instructions regarding the medical treatment you want under these conditions OR

– Can be changed or revoked by you at any time, but cannot be changed or revoked by anyone else

Living Will

Statutory powers given by Ohio Revised Code Section 1337.18◦ Can be broad or limited◦ Covers transactions and signature capabilities◦ Code provides specific powers but those can be

expanded or contracted◦ “Springing” or immediate effect

Durable Financial Power of Attorney

Single Disclaimer A/B (Also known as Marital)

Revocable Trust

Year Estate Tax Exemption

Top Estate Tax Rate

2012 $5,120,000 35%

2013 $5,250,000 40%

2014 $5,340,000 40%

Federal Estate Tax Exemptions & Rates

Life Insurance Trusts (ILITs) Charitable Remainder and Lead Trusts Qualified Personal Residence Trusts ILITs are great for illiquid estates such as

farms, commercial real estate or family businesses

Irrevocable Trusts

• First to die vs. Second to die policies• Benefits

–Take advantage of present value gifts–Remove proceeds from your estate–Supplement an inheritance–Pay estate taxes (Great for small businesses, real estate entrepreneurs,

and farm owners)

ILIT

• Require administrative oversight by Trustee willing to send Crummey letters each year– Grantor cannot be the Trustee without

the likelihood of the asset being pulled back into to Grantor’s taxable estate

• Gives withdrawal rights to children/ grandchildren/ other beneficiaries

ILIT Procedure

Personal Property assignments◦ Tangible such as furniture and clothing◦ Intangible such as business interests◦ CANNOT use assignment for bank accounts,

stocks, etc.◦ Good for confidentiality

Assignment(s) of Interest

• Both C and S Corps can achieve this as well, but the annual administrative requirements and costs with an LLC are less

• Rental properties should be separated from other assets to ensure limited liability

Asset Protection

• Very important to actually set up the company properly – File the proper articles with the secretary of state– Sign an operating agreement (or equivocal document for

corporation)– Separate bank account(s)

Company Formation

- Great for real estate- Transfers without deeds- Minority/Marketability discounts

LLC as Estate Planning Tool

New HUD 1 & Closing a Sale in Today’s

Market

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Congress directed Consumer Financial Protection Bureau to create new forms◦ Current forms overlapping◦ Can be confusing for consumers

Rule replaces current forms with 2 new forms◦ Loan Estimate

Given 3 business days after application◦ Closing Disclosure

Given 3 business days before closing Effective August 1, 2015

The Dodd-Frank Act

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Current FormsBeing Replaced

(Application)

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(Application)

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Reduced paperwork and consumer confusion

Important information prominent on 1st page◦ Interest rate◦ Monthly payments◦ Total closing costs

Easier to compare mortgage loans

Benefits

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More information◦ Costs of taxes and insurance◦ How interest rate & payments may change in future

Warnings for consumers◦ Penalties for paying off loan early◦ Increases to loan balance even if payments on time

More reliable estimates for required services◦ Appraisal / pest inspection fees, etc.◦ Limits increases in charges

Benefits

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New Forms:08/11/2015

Loan Estimate

3 days after application

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Loan Estimate


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Loan Estimate


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(Closing)

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(Closing)

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Closing Disclosure

3 days before closing

Title & Title Insurance

Although Title Insurance is a large part of the real estate process, it is one of the least understood

A real estate investment is your client’s largest outlay of money and subsequently their largest risk

Title 101

◦ Title insurance is insurance that covers defects in the title prior to when your client purchased their property

◦ Protects the buyer from unforeseen defect to the title of their property among other things that could affect their rights of ownership

◦ The title process provides information about the property and involves the proper distributions, payoffs, & paperwork involved in the transfer of the property

What is Title Insurance?

◦ Title Insurance Policies

Mortgage practices have made title insurance a necessary part of the residential closing & escrow process in a majority of cases in Ohio

Lender’s Policy Insures the lender that is has a valid first mortgage on your

property In the event that a defect is found in the title, the lender is

protected under its insurance policy.

Owner’s Policy Insures that the owner has good title to their own property

What is Title Insurance?

◦ The buyer is the typical party responsible for paying for the title insurance & has the right to engage in a title company or agency

◦ Lender’s Coverage The buyer is usually required by the Lender to provide coverage in the amount of the

loan

◦ Owner’s Coverage The buyer has the choice to purchase owner’s coverage in the amount of the purchase price

◦ Real Estate Settlement Procedures Act Effective July 21st, 2011 RESPA makes it unlawful for a lender, broker, attorney, or seller to require a

buyer to use a particular title insurance provider

The Buyer

◦ The seller warrants “good and marketable title”, free of liens or adverse claims that would impair it’s marketability

◦ The seller is responsible for paying off any liens or encumbrances

◦ Encumbrances are legal interests, claims, or restrictions upon property in the form of liens, encroachments, deeds restrictions, licenses, easements, or mortgages

The Seller

◦ Liens are legal claims or security interests in a piece of property

◦ The seller must provide the title agency with paid tax receipts and mortgage and lien payoff information

◦ This can be accomplished by the seller or through the realtor, title agency, or other company specializing in conveyance

The Seller

◦ What is your role? Act as a facilitator Acquire & distribute information to make sure the process moves

forward

Real Estate Broker/Agent

◦ Parties work to clear encroachments to the title & clear the title at or before closing

◦ The title agency typically hosts the closing & ensures that the liens and judgments are paid off, tax payments are prorated, and distribution is made based upon the HUD-1 Settlement Sheet

◦ The new mortgage and deed are executed & recorded at the courthouse in the county in which the home is located

The Process

◦ Title Search is engaged to review the records & to report that information back to the title agent

◦ The search may be performed by a lawyer, an escrow or title company, or an individual specializing in searches

◦ Liens, records of death, divorces, court judgments & contests over wills must all be examined

Title Searches

◦ Documents Creating Interests in or Affecting Title – Chapters 5301 & 5302 of the Ohio Revised Code

◦ Organization & Corporate Authority Documents

◦ Power of Attorneys

◦ Trusts/Wills

Closing/Title/Escrow

◦ Title Examinations, Title Commitment & Title Insurance

◦ Escrow v. Round Table Closings

◦ Tenants-in-Common & Co-Tenancy Agreements

◦ Documents Creating Interest In or Affecting Title

Closing Title/Escrow

Seller must execute deed

Seller must deliver deed

After the deed is accepted, the purchase contract merges into the deed and is destroyed, and all contractual provisions are lost unless included in the deed or the purchase contract specifies that they survive

Deeds

◦ Same names in “deeds in” and “deeds out”

◦ Need Grantor’s Name(s) and Marital Status

◦ Grantee’s Name(s) must be placed in all necessary clauses

◦ Signed by Grantor

◦ Witnesses no longer required

◦ Granting Clause

◦ Acknowledgement (Notary Public)

◦ Description of the property

Proper Format – form and execution

◦ Types of Deeds General Warranty Limited Warranty Quit Claim Transfer on Death Survivorship

Deeds executed in other states

◦ Secured Instrument Given by a debtor (mortgagor) to a creditor

(mortgagee)

Instrument used to secure a loan on real property

Typically serves as security devise used to enforce the terms and conditionsof a promissory note or other contract obligation

Mortgagee can foreclose on the mortgage if Mortgagor is in default and enforce court-ordered sale of property

Equity of redemption – at any time up until the foreclosure sale, the Mortgagor can redeem the property by paying the full amount owed

Mortgages

Due on sale clauses

Must be executed in accordance with similar requirements as a deed in order to be recorded and effective as to third parties Priority Special problems with marital status

Mortgage is an effective lien as to 3rd parties and against the real property described in the mortgage from the date that it is filed for recording

Assignment of mortgages Typical residential mortgage is easily assignable May be assigned either by separate instrument or on

mortgage itself

Mortgages

◦ Full Satisfaction and Release

◦ Partial Release

◦ Mortgages are typically released of record when the debt secured by the mortgage is discharged

◦ If not released of record by Mortgagee, a mortgage is released by statute after 21 years have run from the scheduled maturity date of the principal obligation

Mortgage Releases

◦ If there is no maturity date in the mortgage, then the 21-year statute of limitation runs from the date of the execution of the mortgage

◦ Mortgage can be released by a separate instrument or on the mortgage itself

◦ Mortgage on residential property must be released within 90 days of the date of satisfaction. (O.R.C. Section 5301.36)

Mortgage Releases

◦ Statutory protections for contracts that meet definition: “Land Installment Contract” means an executory agreement which, by its terms, is not required to be fully performed by one or more of the parties to the agreement within one year of the date of the agreement and under which the vendor agrees to convey title in real property located in this state to the vendee and the vendee agrees to pay the purchase price in installment payments, while the vendor retains title to the property as security for the vendee’s obligation.

Land Installment Contracts

Option contracts for the purchase of real property are not land installment contracts.

Statute appears to apply only to residences, but not limited to single family residences: “Property” means real property located in this state improved by virtue of a dwelling having been erected on real property

Statutory protections are substantive and procedural in content and execution of contract and effect

Land Installment Contracts

General Information Price, down payment, and interest calculation Information on Seller’s mortgage and limitation on

balances less then amount due under Land Installment Contract

Deed and title information Vendor (Seller) required to record Land Installment

Contract Payment of taxes, assessments and other charges

must be addressed General Warranty Deed/Conveyance Execution and recording formalities (like deed) and

approved legal description must be used Vendor’s Mortgage

Required Elements of Land Installment Contracts (ORC Section 5313.02)

If Vendee (Buyer) has paid for more than five years or paid more than 20% of the total stated purchase price, then foreclosure is the only option

Otherwise, remedy is “forfeiture,” a court action to terminate Land Installment Contract

10-Day statutory notice and right to cure for Vendee (O.R.C. Section 5313.06)

Remedy on Default

◦ Security interest in real property◦ Priority◦ Common Types

Mechanic’s Lien Judgment Lien Federal Tax Lien State Liens

Liens

◦ Reserved by grantors in deeds◦ Condominium Declarations◦ Subdivision Declarations and HOA documents

Easements, Covenants and Restrictions

◦ Bonding off liens◦ Satisfaction and release of mortgages and liens◦ Settlement or dismissal of pending litigation◦ Quit Claim Deeds◦ Affidavit of facts Related to Real Estate (O.R.C.

Section 5301.252)◦ Termination of old leases or contracts

Curing Certain Title Problems

◦ Title Insurance Forms (2007)◦ Closing Protection Coverage Letters◦ Owner’s Title Insurance Availability Notice◦ Notice to Consumer Residential Mortgage or $75,000 or less◦ Possible Insurance over Title Exceptions & Defects◦ Owner’s Coverage◦ Lender’s Coverage◦ Rates

Owner’s Lender’s Simultaneous Issue Re-Issue Refinance Endorsements

Title Insurance Items

What Every Realtor Needs to Know about Estate Planning & Probate and Selling Homes out of Probate

Real Estate

Transcript of What Every Realtor Needs to Know about Estate Planning & Probate and Selling Homes out of Probate