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Gift tax on hard-to-value gifts

As part of their estate planning, many people want to give away property during their lifetime in order to reduce the size of their taxable estate.

In general, you can give $13,000 a year to anyone you like without having to pay gift tax, and you can make additional gifts over this limit, over the course of your lifetime, up to the amount of your gift tax exemption (although these larger gifts will reduce your estate’s exemption when you eventually pass away). Plus, you can give an unlimited amount to a spouse or charity.

One problem with making gifts for tax purposes is that some types of assets are hard to value. In particular, certain types of real estate, interests in a partnership, and stock in a family-owned business can be very difficult things on which to place a price tag.

You can obtain an independent appraisal of the assets’ value, but some people worry that even if they do, the IRS might disagree with the appraisal. They are concerned that the IRS will say the assets are worth more than they thought, and claim that the gifts were “over the limit” such that they have to pay gift tax. [Read more…]

Update your powers of attorney and health care proxies

Many power of attorney and health care proxy documents that were created years ago should be revised now as a result of a federal medical privacy law.

The law, known as HIPAA, generally prevents health care providers from disclosing your personal medical information to anyone but you and someone you’ve named as your “personal representative.”

Medical privacy may be a good thing – but the law can create complications.

For instance, you may have a health care proxy that names someone you want to make medical decisions for you if you’re not able to make them yourself. But if you haven’t also named that person as your “personal representative” under HIPAA, then he or she might not be able to access your medical information in order to make informed decisions.

Here’s another problem: Many power of attorney documents say that your agent can act on your behalf if you become incapacitated. But if your agent isn’t also your personal representative under HIPAA, then even if you do become incapacitated, your agent might not be able to access your medical records in order to prove it – and as a result, the power of attorney might be of little value. [Read more…]

What you need to know if you’re going to hire an architect

Hiring an architect to design a home, a commercial building, or a new addition can be very exciting. But there can be some traps for the unwary in the fine print of the contract, and you’ll want to have an attorney look it over in order to protect your rights.

Here’s just one example: Who owns the architect’s drawings and plans? You might assume that you do, since you’re paying for them. But one of the most commonly used standard contracts says that the architect, not you, has all ownership rights (including copyrights) in any drawings, plans, or specifications that the architect creates.

What does that mean? It means that if the contract with the architect is terminated for any reason, you have to return all the documents to the architect, and you no longer have a right to use the plans for your building!

There is a provision that says that if the architect is “adjudged” to be in default, you can go ahead and use the plans – but having an architect “adjudged” to be in default can be very time-consuming and expensive.

This gives an architect tremendous leverage to have you settle any dispute in his or her favor, so that you can continue with the construction.

Instead of signing this standard contract, you might want to insist that the architect’s plans will be a “work for hire” – an arrangement that means you will own the plans, not the architect.

Some architects may be reluctant to agree to a “work for hire” arrangement, because they want to be able to legally use similar plans in the future for other clients. In such a case, you might be able to compromise by agreeing that the architect will own the plans, but you’ll have an unrestricted right to use them as long as the architect has been paid in full according to the contract.

Who’s responsible for damage from a fallen tree?

A big storm comes up and knocks down a tree in Bob’s yard. It falls over the property line and damages his neighbor Janet’s car. Is he legally liable for the damage?

As with much in the law, it depends. Generally, though, Bob would be responsible if he knew the tree was in danger of causing damage to Janet’s property, or if a reasonable person in his position would have noticed the danger. For instance, Bob might be responsible if the tree was dead or dying and was leaning precariously over Janet’s driveway, or if Janet had complained to him previously that tree limbs were falling onto her parking space.

On the other hand, if the tree appeared healthy, and it was a total surprise that a hurricane or tornado blew it some distance onto Janet’s yard, Bob probably wouldn’t be liable.

In any event, Janet’s first step should probably be to file a claim with her insurance company.

If you’re a property owner, it’s a good idea to check your trees periodically to see if any of them poses a danger. Falling trees can cause serious personal injuries that are a lot more expensive than a car repair.

If you feel that a neighbor’s trees are a danger to you, and your neighbor won’t do anything about the problem, you have a number of legal options. You might be able to report the dangerous condition to the city, or to a utility company (if the tree is endangering utility equipment), or possibly sue the neighbor for allowing a nuisance. You might also be able to trim the part of the tree that overhangs your property, although you’re generally not allowed to trim the part that’s on your neighbor’s property.

New Federal estate tax law affects widows and widowers who have plans to remarry

Widows and widowers who are considering remarriage should be aware that a new federal tax law could potentially make a huge difference in how much of their assets they are able to leave to their heirs after taxes.

In general, anyone who is considering remarriage later in life should talk to an estate planning attorney first in order to avoid possible tax problems. But this new law gives added urgency to this rule, because it potentially could result in huge additional taxes – or tax savings – and planning for this possibility is essential.

Generally, when a person dies, his or her estate can give an unlimited amount to a surviving spouse tax-free. However, if the person’s bequests (plus large lifetime gifts) to other beneficiaries – such as children – total more than a certain “exemption amount,” then an estate tax must be paid. For 2012, the exemption amount is a little over $5 million.

In the past, the general rule was that the exemption amount applied separately to each spouse. So if a husband died first, his estate could use his exemption amount, and when his wife died later, she would get her own exemption amount. [Read more…]

Beware buying a condo that’s new construction

With the real estate market still in the doldrums, a lot of people are thinking that this is a good opportunity to buy a brand new condominium, rather than one in an older community.

New construction has a lot of advantages – but it can also be more complicated, and there are some potential trouble spots as well. You should definitely speak with your real estate attorney before you sign anything in order to make sure you’re protected.

There are three big advantages to new construction:

One, everything’s new! You get to enjoy a brand-new kitchen, brand-new bathrooms, brand-new appliances, etc. Plus, you can avoid paying for major common-area maintenance items that an older building might need, such as repainting or roof repairs.

Two, if you buy before construction is completed, you can often have the finish work done to your liking: You can choose paint colors, bathroom tile, kitchen surfaces and so on. [Read more…]

Prevent a potential will contest when making your will.

People are sometimes concerned that after they die, a beneficiary (or more likely a non-beneficiary) will go to court to contest their will. Typically, a disgruntled would-be heir might claim that the person who made the will wasn’t mentally competent, or was under undue influence from some other person. These types of will contests can be very expensive, and they can cause a lot of emotional hardship within a family.

Recently, a handful of states have allowed people who make a will to go to court while they’re still alive and have a judge rule that the will is valid – thus preventing a will contest.

These states include Alaska, Arkansas, Nevada, North Dakota and Ohio. Similar legislation is pending in Delaware.

Even if you don’t live in one of those states, you might be able to obtain a court ruling there, such as by putting your assets into a revocable trust and hiring a trustee in that state.

[Read more…]

New disability access requirements will take effect in early 2012

The Americans With Disabilities Act was passed 20 years ago and required retail and other commercial business owners to renovate their properties to make them accessible to the disabled. For the first time since then, the U.S. government has comprehensively revised the requirements. The new requirements will go into effect on March 15, 2012.

The changes include new rules for the following: van-accessible parking, maximum height and “reach ranges” for certain objects, service animals, communication devices for the hearing-impaired, seating requirements in theaters and other assembly areas (including access to stages), pool access, hotel reservations, wheelchair accessibility for employees, the use of mobility devices other than wheelchairs (such as Segways), and more.

[Read more…]

Buying or selling real estate at an auction can be complicated

A small but growing percentage of real estate is being sold at auction. The advantage of an auction for a seller is that the property will definitely be sold quickly, although usually at a lower price. So auctions often attract sellers who simply want to unload a property, such as a lender that has foreclosed on it, or an executor whose heirs want cash and not real estate.

Auctions often attract buyers who are looking for a deal – although auctioned properties are usually sold “as is” with no guarantees, so unless you’ve done careful homework and had everything inspected thoroughly, the property might not be as good a deal as you first thought.

Auctions require special contracts and agreements that aren’t part of a traditional real estate transaction.

Because auctions are unusual and require special contracts and agreements, a seller will definitely want to work with an attorney as well as an auctioneer.

The first contract is between the seller and the auctioneer. This should include the auctioneer’s compensation and any specific requirements such as a minimum price, deed restrictions, or a seller’s veto power over the auctioneer’s advertising materials. [Read more…]

Some estates can save money by filing tax returns – even if they don’t have to

And people with older wills should have them reviewed now, due to a new law from Congress

A federal estate tax return doesn’t have to be filed every time someone dies. In fact, most estates never have to file one. In 2011 and 2012, a return has to be filed only if the person’s estate (including property, life insurance, taxable gifts, etc.) is worth $5 million or more.

However, even if a return isn’t required, a recent change in the law means there could be big tax savings for many families if they file one anyway.

The change applies to estates of people who die in 2011 or 2012 and are survived by a spouse.

There are strict time limits for filing a return, so if you know of someone whose family could take advantage of these savings, you or they should speak with an attorney right away.

[Read more…]