Kansas and Missouri Estate Planning

What is the Difference Between a Quitclaim Deed and a Warranty Deed?

Quit claim deeds and warranty deeds are not the same.

If you own real estate, you have a deed.

A deed is essential to the buying, selling, and transferring of a property.

According to a recent Bankrate article titled “Quitclaim vs. warranty deed: What you need to know,”  the type of deed you have for the property is important.

The two basic types of deeds are quitclaim deeds and warranty deeds.

How are these distinct?

A quitclaim deed does not guarantee the title status of the property.

The buyer or recipient only receives what the property owner actually owns.

A quitclaim is sufficient in cases where there are no liens or other issues with the property ownership.

When would this be a good option?

If you own the property fully, you can use a quitclaim deed to transfer ownership to a trust or a limited liability company you control yourself.

A warranty deed is best when other parties are involved, unless it involves adding the name of a spouse or transferring your interest in a divorce.

If your situation involves greater complexity, you should have a warranty deed in place.

With a warranty deed the sellers or owners of the property are guaranteeing that they hold ownership to the property and have the legal authority to transfer their ownership interests.

This protects the buyer who can sue if the seller misrepresented their ownership.

How is this important for estate planning?

Let us say your children inherited your family home together under a warranty deed.

One child wants to sell and the others do not.

The one child finds a buyer and sells the property.

The siblings who wanted to keep the property and the buyer could sue the renegade sibling since the ownership was misrepresented.

When buying a home from an inherited estate, a warranty deed is the safest choice.

Even if the buying and selling takes place between family members, the warranty deed will protect the legal rights of the buyer.

In short, a warranty deed is the safer option.

If you have real estate as part of your estate plan, work with an experienced estate planning attorney to ensure your plan sufficiently addresses your property ownership according to your specific situation.

Reference: Bankrate (September 4, 2019) “Quitclaim vs. warranty deed: What you need to know”

What are Some Downsides to an Inheritance?

Leaving an inheritance could be a burden to your heirs.

You have started your estate planning.

You want to leave a financial legacy for your children.

Dividing your estate equally in your estate plan seems simple enough.

According to a recent Kiplinger article titled “Are You Forcing Unintended Consequences on Your Heirs?,” leaving an inheritance may be a burden to your heirs.

No, really.

IRA burdens.

Traditional IRAs bring with them Required Minimum Distributions and taxes on distributions.

These do not disappear when inherited.

Chances are your children will not have the same tax liabilities.

After tax, some children may end up with a smaller inheritance due to their higher marginal rate.

Real estate issues.

If you have a vacation home, you may hope your children will want to keep it.

Two viable options to consider are to: 1) pass the property through a Qualified Personal Residence Trust, or 2) leave it directly to your children.

Be sure you discuss this with your children in advance.

They will need to be on board with taxes and upkeep.

Liquidating assets.

Collections, alternative investments, and real estate are often sold at auction after death.

Unfortunately, this can result in them being sold for lower prices.

The result?

Your family would be left with less.

Make plans early so as to maximize their return on your investment for your loved ones.

Life insurance mistakes.

You may have once held a life insurance policy in an Irrevocable Life Insurance Trust (ILIT).

With a higher federal estate tax threshold (i.e., $11.4 million per persons for 2019), maintaining the ILIT may be unnecessary.

There is no need to overcomplicate things for your loved ones.

However, make no moves without consulting with your estate planning attorney and your impacted loved ones who are ILIT beneficiaries.

Inefficient trusts.

A trust can be helpful when bypassing probate.

Be sure your trust meets the needs of your family.

Careless planning can create an unnecessary burden.

Discuss your plans with your heirs and an experienced estate planning attorney to create a plan (or update your current plan) to meet the needs of all parties involved.

Reference: Kiplinger (June 13, 2019) “Are You Forcing Unintended Consequences on Your Heirs?”

What Taxes Should I Expect to Pay on My Inheritance?

Taxes on inheritances vary.

Someone who knows you and loves you had money.

He or she died.

Now you have received an inheritance.

What should you do now?

According to a recent Orange Town News article titled “Will I Pay Taxes on My Inheritance,” your actions are dependent on the type of inheritance you received.

Let us take a look.

Bank Savings Accounts or CDs.

If the account is not a retirement account, the federal government will not impose an income tax.

The federal government does not have an inheritance tax either.

Unfortunately, certain states will impose an "inheritance" tax.

These include Iowa, Maryland, New Jersey, Kentucky, Nebraska, and Pennsylvania.

Talk with an experienced estate planning attorney about the best actions to take.

Primary Residence or Other Real Estate.

Inheriting a home or real estate does not trigger taxes.

When you sell the property and home, you will may be taxed on capital gains.

Valuation is established on the day of death.

Let us say the value is $250,000 at the date of death and you wait to sell it.

When you do sell, the value has risen to $275,000.

The $25,000 gain must then be taxed.

The day you take ownership determines the cost-basis.

Life Insurance Proceeds.

These proceeds are not taxable as income.

There is an exception.

If interest is earned, you could owe taxes.

This occurs when the receipt of the proceeds is delayed.

The Form 1099-INT muse be filed by the beneficiary.

The interest will be taxable by both the state and the federal government.

If the proceeds are transferred to an individual before the insured dies, the proceeds are fully taxable.

There is another possible exemption: the value of the death benefit is included as part of your gross estate for determining federal estate taxes.

Consequently, if the amount of life insurance death benefit put you above the federal estate tax exemption ($11.4 million per taxpayer for 2019), then your estate may be subject to taxation.

Retirement Accounts: 401(k) and IRA.

Whether a traditional IRA is inherited or not, distributions are taxable.

Roth IRA distributions are not taxable, unless taken within five years of the IRA being established.

Laws for retirement plan distributions may change based on pending legislation.

And not for the better.

This means you should discuss options with your experienced estate planning attorney.

Some 401(k)s are taxed or will be taxable.

How much is the tax?

This depends on the particular rules of the 401(k) plan.

The distribution for some plans must be a lump sum.

If a spouse inherits, he or she may rollover into an IRA.

If not a spouse, the lump-sum will likely have to be taken and the resulting taxes paid.

Stocks.

Usually, capital gains are paid on gains made during the period of ownership post-inheritance. (See the hypothetical regarding real estate above.)

When inherited, cost basis is determined from the fair market value on the date of death.

Artwork and Jewelry.

If assets like jewelry, artwork, rare stamps, books antiques, and coin collections are inherited, they will trigger a tax on the next gain at sale.

The rate is higher than most capital gains assets.

Instead of 15 or 20 percent, the capital gains rate is 28 percent.

Valuation like other assets is determined on date of death or the alternate valuation date.

Before accepting your inheritance, you should discuss the inheritance and the tax liability with your attorney.

This will help you have a better understanding of your situation and how your choices will impact your finances.

Reference: Orange Town News (May 29, 2019) “Will I Pay Taxes on My Inheritance”

Can I Share a House in Retirement to Cut Costs?

Having roommates can be great at any age.

Whether you have never been married, are divorced or have recently been widowed, sharing a house together can be a smart move.

The benefits?

You can live with your best friends.

You can share responsibilities.

You can spend less and get more for housing.

However, it is important to consider the legal implications of sharing ownership in real estate.

According to a recent NJ 101.5 article, titled “Buying a retirement home together,” you need to consider two primary issues: death and irreconcilable differences.

How do you prepare for these?

Carefully title your property.

Your options?

Joint Tenants with Rights of Survivorship (JTWROS)

With Joint Tenants with Rights of Survivorship, the property is owned equally and as a whole.

Can you transfer the property?

It depends.

For example, in Kansas and Missouri, if you want to "sever" the joint tenancy by transferring your undivided interest to your living trust, then you can without any prior approval of the co-owners.

What happens when you die?

When you die, your share will passed automatically to the other owners—no matter what your will says.

Tenants in Common (T-I-C)

With Tenants in Common (T-I-C) the property is retained independently in equal or unequal shares by the owners.

In short, each owner maintains complete control over his or her share.

Obviously, you can transfer your share at any time without the consent of the other owners.

How is the property transferred at death?

When you die, your share of the property will be transferred according to your will, making this basic element of estate planning necessary for both parties.

Because estate planning plays an important role in property ownership, you should work with an experienced estate planning attorney to ensure the titling of the property aligns with your estate planning goals.

You and your roommates should communicate about your respective desires when it comes to the ownership form and how each interest should pass at death.

With the planning complete, you can make memories with your roommates worry free. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: NJ 101.5 (August 2, 2016) “Buying a retirement home together”

How Can I Pass My Home to My Heirs?

Specific rules apply to transferring real estate assets.

Congratulations!

You have achieved (at least part of) the American dream.

You are a homeowner.

Owning your own home is an incredible blessing, but it does bring with it extra considerations.

You are now responsible for insurance, protection, upkeep and upgrades.

You also have to plan for what will happen to your property when you die.

What should you do? Where should you begin?

Fox News had a recent article, titled “You're Going to Die—Here Are the Best Ways to Deal with Your Home,” with helpful advice to help you plan for the inevitable.

First, passing property through a last will can be messy.

And long.

Why?

The property must pass through probate, a long and sometimes expensive process (from fees and taxes).

Only after probate proceedings can your heirs take possession and sell or keep it.

Is there a better way?

There sure is.

What are your options?

Tenancy by the entirety.

This method only works if you are leaving your house to your spouse and live in a state where joint ownership by spouses means each spouse owns 100% of the same assets bearing both of their names.

Missouri is one such state.

How does it work?

It is pretty simple.

If you die with your name and the name of your spouse on the deed, then the home continues to be owned "100%" by your surviving spouse rather than through passing through probate first.

Probate could still be an issue after your spouse passes, but he or she will not have to deal with the process.

Joint tenancy.

You can arrange for a similar outcome as tenancy by the entirety when the other owner is your spouse ... or is not your spouse.

In Kansas, however, the deed itself must clearly state the intention to hold the property as "joint tenants with rights of survivorship and not as tenants in common." 

There are some potential pitfalls.

What are they?

If your joint tenant is involved in a lawsuit, divorce or debt, your property could be lost even while you are alive.

Consider avoiding this by creating a living trust instead.

Living trusts.

A trust allows the trustee to manage any property or assets owned by the trust on behalf of the beneficiary.

The good news about a living trust?

You can act as the trustee and maintain full control until you pass away.

Only when you die will it be passed to the beneficiary.

And there is no probate involved.

Change your mind on your heir?

You can update the beneficiary at any time.

To do this right, you will need an experienced estate planning attorney to set the living trust up for you.

Land trusts (if valid in your state).

What is a land trust?

Like the name indicates, it is a trust, and it only holds land.

As a trust, transfer of property is easier, smoother and less public than through a will.

Unlike a living trust, they require a setup fee and additional yearly fees (usually less than $100).

If you desire more flexibility, you should use a living trust.

As you review these options and others (i.e., "beneficiary deeds" can be a simple alternative in Kansas and Missouri), perhaps one of them seems more suitable to your situation.

Great.

Set up an appointment with your experienced estate planning attorney to protect your “American dream” for your loved ones. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Fox News (July 22, 2016) “You're Going to Die—Here Are the Best Ways to Deal with Your Home”

How Do I Choose a Cemetery?

When it comes to picking a burial plot, you need to do so while you are among the living.

If you are not opting for cremation, finding a cemetery and performing your due diligence will be a vital part of your end-of-life planning.

Why?

Failing to investigate may have negative consequences.

Enter a recent WTSP 10 News story, titled “Protecting your loved ones last resting place."

It tells a cautionary tale of an overgrown Sarasota, Florida cemetery.

Sarasota Memorial Park was unkempt, overgrown and not in compliance with county codes.

Only after a complaint from a few dog walkers, some bad press and a warning from the County Code Enforcement Department did the property managers respectfully care for the grounds.

Do not let this happen to your final resting place.

So what do you need to know?

Cemetery maintenance is contractual, meaning it is included in the payment for the grave site. You should not have to worry about the upkeep, but with the wrong company, you will.

Actually, your loved ones will for obvious reasons.

Why put them in that position in the first place?

So, how do you vett a cemetery?

Do your research.

Learn the reputation of the memorial park.

Ask about maintenance allocations and the endowment trust fund.

What is an endowment trust fund?

This trust fund places money from the purchase aside for upkeep.

In Florida where the aforementioned cemetery is located, state law requires that 10% of a plot purchase transaction must go to this endowment fund, and Florida State Statute §497.262 requires cemetery managers to keep the property “well cared for and maintained in a proper and dignified condition.”

Once you or your loved one has selected a final resting place, hold the management accountable.

Take a photo on the day you make the purchase and take a picture every time you visit for visual evidence and support.

By choosing wisely, you and your loved ones can rest in peace.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: WTSP 10 News (June 27, 2016) “Protecting your loved ones last resting place”

The Inherited Home - Avoiding The Undervalued Sale / Overland Park, KS

Inheriting residential real estate can be an immense gift and boon to your future. Even if you will not reside there and it is just an asset to sell, what a windfall it can be! That said, inheriting residential real estate also brings with it certain important responsibilities, and that goes double and triple for executors or trustees.

There are all sorts of liabilities, insurances, and special transactions that might become important when a piece of residentail real property is at stake. However, foremost at issue for heirs is selling at the right value.

Indeed, responsibility for understanding the real estate market or knowing whom to trust when selling real estate is something an heir takes on.

A possible case of failure to get the value of an inheritance right was brought to light in a recent MarketWatch article titled “This NYC home’s price rose 54% in a week.”

The New York City home in question was inherited and then privately sold. Thereafter, the buyers turned around and sold it again - and the market snapped it up at 154% of the sale price given to the heirs.

Ouch!

Perhaps the heirs knew what was going on. On the other hand, perhaps this was a classic case of heirs accidentally lighting up a fire sale in their haste to get rid of an asset.

While heirs themselves can lose such a windfall, woe be it to executors or trustees who do not do their due diligence and miss the mark on a profitable sale.

If you are set to inherit a property, it is essential to understand the responsibilities and myriad factors at play. No, you do not need to become a real estate expert, but it is a great idea to be fulling informed and appreciate all of the moving parts involved.

What if you are planning for your estate now in Overland Park or elsewhere? Do you know the value of the properties you might pass down and is there something that can be done either to teach your heirs or to maximize the value of the property?

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: MarketWatch (March 19, 2014) “This NYC home’s price rose 54% in a week”