It’s National Estate Planning Week (I know you’re as excited about it as we are!) which is a good excuse to bring up a hypothetical scenario: what happens, in terms of estate planning, if either the buyer or seller in a sale of real estate (like a house or land) dies before the closing?
It’s a situation that is fairly improbable, but it can and does happen. Plus, it’s good to explore just in case you ever find yourself dealing with this as the executor of a loved one’s estate.
Let’s say that you’re buying a house and you’ve already executed the contract (a purchase agreement) with the seller. Before the closing date, the seller passed away. What happens to the property? How does it fit into the seller’s estate plan? What is the executor responsible for? It’s easy to see how this can be a complicated conundrum.
At this point, after the purchase agreement is drawn up and before the closing, you as the buyer hold an equitable title in the real property (the house). Equitable title is legal parlance meaning here that the buyer has a right to obtain full ownership of a property (or property interest). Equitable title comes with certain rights. For example, the seller can’t sell the property to a third party or subject the property to an encumbrance or a lien that would interfere with the buyer’s property interest.
Legal title, in comparison, is actual ownership of the land. In the period between the sale agreement and the closing, the seller holds the legal title to the property being sold. Legal title transfers to the buyer when the final payment is made (typically this is done at the closing or through an escrow process when the buyer receives the property deed in exchange for the payments made).
Like our hypothetical, if the seller dies during this point in the sales process this legal title in the property is a part of the seller’s estate. That means the seller’s estate can still sell the property (and is contracted to do so), collect the profit from the sale, and then disperse the profits as part of the decedent’s total gross estate to the beneficiaries.
The seller’s heirs-at-law and/or estate plan beneficiaries may have expected to inherit the house. But, if the seller entered into a valid contract for sale before they died, the estate’s executor is bound to honor the contract.
Note that sometimes there are required waiting periods where the executor must wait before executing documents for the estate (such as the sale of real estate). So, as the buyer, you can anticipate a reasonable time delay (think 30 days) compared to the schedule set out in the purchase agreement.
Of course, there are many rules of real estate and contract law that come into play, but in terms of property and how it plays into the estate planning process, these are the basics!
Enlist an Estate Planning Attorney to Help Everything Run Smoothly
If you do find yourself in the position of being the executor of a seller’s estate and that seller died in the midst of a real estate sale, don’t hesitate to enlist the expertise of an estate planner to help guide you how to best accommodate and fulfill your fiduciary duties.
On a related point, if you sell your house or purchase a new property, it may necessitate updates to your estate plan! Review your plan and then schedule a free consult to ensure all of your assets are properly accounted for in your plan.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2018/10/Screen-Shot-2018-10-20-at-3.33.49-PM.png686997Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-10-22 15:35:372020-05-18 11:28:42Estate Planning Scenario: Death During Real Estate Sale
Believe it or not, National Estate Planning Awareness Week is a very real thing and we’re celebrating October 21-27! Let’s kick it off with a brief history on the Week and estate planning in general.
Background on National Estate Planning Awareness Week
In general, it’s in the best interest of society when the transfer of wealth and property is as seamless and as close to the decedent’s intent as possible. That’s where estate planning comes in and why it’s so essential.
For as long as people have had property, that property has been distributed or passed along in some manner or another. In early cultures property was considered to be owned collectively by a family or tribe and when a leader of the group perished the assets were divided in accordance with family/tribal customs.
Estate planning was apparent in ancient Rome under the Code of Justinian which recognized oral and written wills that were approved by a public official. In the Anglo-Saxon period of England, royalty had to approve land transfers. That changed in the 12th century when property would automatically pass to the eldest son. Under English law, the Statute of Wills was established in the 16th century which allowed a landowner to pass along their land as they wished, whether that was to the eldest or not.
Current state intestacy laws are a modern iteration of British common law in which property inheritance passed to the spouse and children in pre-defined percentages.
Unfortunately, women were often excluded entirely from estate planning; assets were only distributed amongst male heirs at law and women were disinherited. At certain points throughout history, women (such as a wife or daughter) could be provided for through a trust upon the death of the husband/father, but often that trust was dissolved if/when the woman married/remarried. Thankfully policy and society progressed, and now women and men have an equal right to inheritance and ability to convey assets.
To that point, the individual American citizen of today has the freedom to plan for the distribution of property as wished without approval needed or mandate defining who can and cannot be a beneficiary.
Estate Planning in the United States
In U.S. history, estate planning has been intricately linked with estate taxes because estate planning techniques are tools to reduce or even eliminate the Federal estate tax. To understand that in full you could go all the way back to the Stamp Act of 1797, where a tax was passed to fund the Navy in an “undeclared war with France.” The estate tax was subsequently abolished and then reinstated with corresponding wars including the Civil War and Spanish American War.
The estate tax, more or less as we think of it today, was instituted in association with World War I in 1916. To bypass this, people would gift parts of their estates to their families to which the lawmakers responded to by passing a gift tax in 1924. It was briefly repealed and then re-enacted in 1932 and remained that way until 1976 when the gift and estate tax were consolidated.
In modern political history, the estate tax has seen a few major changes; it was entirely revoked in the 2010 calendar year after 2001 legislation phased out the tax. However, that didn’t last long. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 meant a return of the estate tax but raised the exclusion to $5 million for 2011 and 2012. Then came the American Taxpayer Relief Act of 2012 which kept the $5 million inflation-adjusted exclusion figure, but increased the maximum rate of the tax to 40 percent from 35 percent. In 2018, the exclusion rate sits at $11.18 million per individual. This means an individual can leave $11.18 million to heirs and pay no federal estate or gift tax. Married couples get an exclusion for each spouse, so a couple can leave up to $22.36 to their heirs and IRS won’t collect estate tax on it.
All of this history is to say that estate planning, in some form or another, has been an important aspect of societies in the world for a long time. Regardless of the size of your estate, and just like the ancient Romans or Americans of the early 1900s, you want to pass along your assets to the people you care about and want to provide for. Claim your right to distribute your property in accordance with your wishes by ensuring you have an up-to-date, quality estate plan. The best way to get started is with my free (and no obligation) Estate Plan Questionnaire. It’s a great tool for organizing all the important information you and your estate planner need to know when creating your custom estate plan.
Just like it’s a smart idea to have a personal “rainy day” fund just in case of an emergency home repair, surgery, or other unexpected large costs, the same goes for a nonprofit organization. Even nonprofits with solid income streams can be hit with unanticipated events, income, and unbudgeted expenses. In these situations, it’s vital to have that financial cushion in the form of operating reserves so the organization doesn’t suffer long-term, negative consequences from temporary dilemmas. Concurrently, it’s essential to have the board adopt and adhere to a policy outlining the details of the reserve.
A common scenario where operating reserves may be prompted can be when a source of a reliable income is withdrawn or reduced without expectation.
Every organization’s policy is going to look different, but there are a few general areas that should be addressed.
Purpose– Why is it important for the organization to build and maintain reserves?
Definitions- How are the types of reserves, calculation of targeted amounts, and intended use defined?
How the reserve is funded– An operating reserve is only as valuable as its reliability. The policy should set out a practical plan for replenishment to the targeted amounts. Often, a worthy reserve goal is about three to six months of expenses. At the very least, on the low end, reserves should cover one full round of payroll.
When the reserve can be used– The plan should layout when the reserves can be tapped when unexpected shortfalls hit. The reserves should not be used to address foundational finance issues. In a “last straw” scenario, operating reserves can be used to close down the organization.
Classify the operating reserve as unrestricted– Unlike restricted funds that are marked for specific programs and projects, the operating reserve should be set as unrestricted so that the board and management can employ as they choose when the crisis calls for it.
Additionally, keep in mind that an operating reserves policy should be written to correspond with any other financial-specific policies, like an investment policy.
Want to discuss your nonprofit’s policy needs? Don’t hesitate to contact me at 515-371-6077 or gordon@gordonfischerlawfirm.com. I’m based in Cedar Rapids, Iowa but will travel to meet with nonprofit pros all across the state.
Estate Planning Scenario: Death During Real Estate Sale
Estates & Estate Planning, Wills, Trusts & EstatesIt’s National Estate Planning Week (I know you’re as excited about it as we are!) which is a good excuse to bring up a hypothetical scenario: what happens, in terms of estate planning, if either the buyer or seller in a sale of real estate (like a house or land) dies before the closing?
It’s a situation that is fairly improbable, but it can and does happen. Plus, it’s good to explore just in case you ever find yourself dealing with this as the executor of a loved one’s estate.
Let’s say that you’re buying a house and you’ve already executed the contract (a purchase agreement) with the seller. Before the closing date, the seller passed away. What happens to the property? How does it fit into the seller’s estate plan? What is the executor responsible for? It’s easy to see how this can be a complicated conundrum.
Equitable and Legal Title
At this point, after the purchase agreement is drawn up and before the closing, you as the buyer hold an equitable title in the real property (the house). Equitable title is legal parlance meaning here that the buyer has a right to obtain full ownership of a property (or property interest). Equitable title comes with certain rights. For example, the seller can’t sell the property to a third party or subject the property to an encumbrance or a lien that would interfere with the buyer’s property interest.
Legal title, in comparison, is actual ownership of the land. In the period between the sale agreement and the closing, the seller holds the legal title to the property being sold. Legal title transfers to the buyer when the final payment is made (typically this is done at the closing or through an escrow process when the buyer receives the property deed in exchange for the payments made).
Like our hypothetical, if the seller dies during this point in the sales process this legal title in the property is a part of the seller’s estate. That means the seller’s estate can still sell the property (and is contracted to do so), collect the profit from the sale, and then disperse the profits as part of the decedent’s total gross estate to the beneficiaries.
What About the Seller’s Heirs?
The seller’s heirs-at-law and/or estate plan beneficiaries may have expected to inherit the house. But, if the seller entered into a valid contract for sale before they died, the estate’s executor is bound to honor the contract.
Note that sometimes there are required waiting periods where the executor must wait before executing documents for the estate (such as the sale of real estate). So, as the buyer, you can anticipate a reasonable time delay (think 30 days) compared to the schedule set out in the purchase agreement.
Of course, there are many rules of real estate and contract law that come into play, but in terms of property and how it plays into the estate planning process, these are the basics!
Enlist an Estate Planning Attorney to Help Everything Run Smoothly
If you do find yourself in the position of being the executor of a seller’s estate and that seller died in the midst of a real estate sale, don’t hesitate to enlist the expertise of an estate planner to help guide you how to best accommodate and fulfill your fiduciary duties.
On a related point, if you sell your house or purchase a new property, it may necessitate updates to your estate plan! Review your plan and then schedule a free consult to ensure all of your assets are properly accounted for in your plan.
Any questions about your specific estate planning situation? Contact GFLF at gordon@gordonfischerlawfirm.com or by phone,515-371-6077.
National Estate Planning Awareness Week & a Brief History Lesson
Estates & Estate Planning, Events, Taxes & Finance, Wills, Trusts & EstatesBelieve it or not, National Estate Planning Awareness Week is a very real thing and we’re celebrating October 21-27! Let’s kick it off with a brief history on the Week and estate planning in general.
Background on National Estate Planning Awareness Week
National Estate Planning Awareness Week was an effort spearheaded by the National Association of Estate Planners & Councils (NAEPC) and Rep. Mike Thompson (D-CA) (with 49 other Representatives on board). In September 2008, Congress passed H. Res. 1499 which designated the third week in October as a week for assisting the public in understanding the importance and benefits of estate planning, as well as how to assemble a qualified team of experts to assist in the process.
In general, it’s in the best interest of society when the transfer of wealth and property is as seamless and as close to the decedent’s intent as possible. That’s where estate planning comes in and why it’s so essential.
Sure, you won’t see decorations for sale for National Estate Planning Awareness Week…but you can still celebrate by discussing your estate planning needs and goals with a qualified, experienced estate planning attorney. This goes for your first (much needed) estate plan, but also revisions on existing estate plans. (Remember, estate plans never expire!)
Time Warp: A Brief History of Estate Planning
For as long as people have had property, that property has been distributed or passed along in some manner or another. In early cultures property was considered to be owned collectively by a family or tribe and when a leader of the group perished the assets were divided in accordance with family/tribal customs.
Estate planning was apparent in ancient Rome under the Code of Justinian which recognized oral and written wills that were approved by a public official. In the Anglo-Saxon period of England, royalty had to approve land transfers. That changed in the 12th century when property would automatically pass to the eldest son. Under English law, the Statute of Wills was established in the 16th century which allowed a landowner to pass along their land as they wished, whether that was to the eldest or not.
Current state intestacy laws are a modern iteration of British common law in which property inheritance passed to the spouse and children in pre-defined percentages.
Unfortunately, women were often excluded entirely from estate planning; assets were only distributed amongst male heirs at law and women were disinherited. At certain points throughout history, women (such as a wife or daughter) could be provided for through a trust upon the death of the husband/father, but often that trust was dissolved if/when the woman married/remarried. Thankfully policy and society progressed, and now women and men have an equal right to inheritance and ability to convey assets.
To that point, the individual American citizen of today has the freedom to plan for the distribution of property as wished without approval needed or mandate defining who can and cannot be a beneficiary.
Estate Planning in the United States
In U.S. history, estate planning has been intricately linked with estate taxes because estate planning techniques are tools to reduce or even eliminate the Federal estate tax. To understand that in full you could go all the way back to the Stamp Act of 1797, where a tax was passed to fund the Navy in an “undeclared war with France.” The estate tax was subsequently abolished and then reinstated with corresponding wars including the Civil War and Spanish American War.
The estate tax, more or less as we think of it today, was instituted in association with World War I in 1916. To bypass this, people would gift parts of their estates to their families to which the lawmakers responded to by passing a gift tax in 1924. It was briefly repealed and then re-enacted in 1932 and remained that way until 1976 when the gift and estate tax were consolidated.
In modern political history, the estate tax has seen a few major changes; it was entirely revoked in the 2010 calendar year after 2001 legislation phased out the tax. However, that didn’t last long. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 meant a return of the estate tax but raised the exclusion to $5 million for 2011 and 2012. Then came the American Taxpayer Relief Act of 2012 which kept the $5 million inflation-adjusted exclusion figure, but increased the maximum rate of the tax to 40 percent from 35 percent. In 2018, the exclusion rate sits at $11.18 million per individual. This means an individual can leave $11.18 million to heirs and pay no federal estate or gift tax. Married couples get an exclusion for each spouse, so a couple can leave up to $22.36 to their heirs and IRS won’t collect estate tax on it.
Final Footnote
All of this history is to say that estate planning, in some form or another, has been an important aspect of societies in the world for a long time. Regardless of the size of your estate, and just like the ancient Romans or Americans of the early 1900s, you want to pass along your assets to the people you care about and want to provide for. Claim your right to distribute your property in accordance with your wishes by ensuring you have an up-to-date, quality estate plan. The best way to get started is with my free (and no obligation) Estate Plan Questionnaire. It’s a great tool for organizing all the important information you and your estate planner need to know when creating your custom estate plan.
This is the first of a week’s worth of articles all dedicated to the topic of estate planning as a part of National Estate Planning Awareness Week. Want to discuss your estate plan or talk about the history of the estate tax? Don’t hesitate to contact me.
Operating Reserves Policy: Why Your Nonprofit Needs One
NonprofitsJust like it’s a smart idea to have a personal “rainy day” fund just in case of an emergency home repair, surgery, or other unexpected large costs, the same goes for a nonprofit organization. Even nonprofits with solid income streams can be hit with unanticipated events, income, and unbudgeted expenses. In these situations, it’s vital to have that financial cushion in the form of operating reserves so the organization doesn’t suffer long-term, negative consequences from temporary dilemmas. Concurrently, it’s essential to have the board adopt and adhere to a policy outlining the details of the reserve.
A common scenario where operating reserves may be prompted can be when a source of a reliable income is withdrawn or reduced without expectation.
Important Elements of an Operating Reserve Policy
Every organization’s policy is going to look different, but there are a few general areas that should be addressed.
That’s Not All
Because each nonprofit is unique, each nonprofit is going to need policies and procedures tailored to their specific operations. That said, generally, there are at least 10 policies most nonprofits need to be prepared to address on the annual information filing, Form 990. Check out my free guide to nonprofit policies and procedures.
Additionally, keep in mind that an operating reserves policy should be written to correspond with any other financial-specific policies, like an investment policy.
Want to discuss your nonprofit’s policy needs? Don’t hesitate to contact me at 515-371-6077 or gordon@gordonfischerlawfirm.com. I’m based in Cedar Rapids, Iowa but will travel to meet with nonprofit pros all across the state.