Federal Estate & Gift Tax... Congress Answers

There has been much talk over the last few months on the "expiration date"  of exemptions pertaining to federal estate taxes, gift taxes and generation skipping transfer taxes created under Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act ("TRUIRJCA" or "TRA 2010" for short) that was enacted in December 2010. 

After much debate, the American Taxpayer Relief Act ("ATRA" for short) was signed into law by President Obama on January 2, 2013. This new law makes the changes made by TRA 2010 permanent with regard to federal estate taxes, gift taxes and generation skipping transfer taxes.

Below you will find a summary of the 2013 Changes:

1. New and more favorable exemptions on estate tax, gift tax and generation-skipping transfer taxes. ATRA set the lifetime gift and estate tax exemption at $5 million per person, with annual adjustments for inflation.  Married couples may combine their exemptions to allow for double that amount.  The 2012 federal estate tax exemption rate of $5.12 million increased to $5.25 million for 2013. 

2. Less favorable top tax rates. The Estate Tax Rate increased from 35% to 40% on taxable estates (estates valued over $5.25 million). 

3. Portability of the federal estate tax exemption between married couple now permanent. A married couple can pass on $10.5 million to their heirs free from federal estate taxes. Note, however, that even if the deceased spouse's estate will not be taxable (in other words, is valued less than $5.25 million), the surviving spouse will nonetheless be required to file IRS Form 706, United States United States Estate (and Generation-Skipping Transfer) Tax Return, in order to take advantage of the deceased spouse's unused estate tax exemption, otherwise the deceased spouse's exemption will be lost.

Highest Increase in 3 years for Orlando homes

As I look around my neighborhood, I have noticed an upward shift in sales and price.  It's great to see that the upward swing is being felt throughout Central Florida: 

November’s median price for existing homes in Orlando was $129,000, up 12 percent compared to last year, and the midpoint price reached its highest level in three years, the Orlando Sentinel reports.

The Orlando Regional Realtor Association reported that its members sold 2,430 houses last month – a 20 percent increase from the year-ago period – and the average interest rate paid by homebuyers in Orlando was 3.47 percent compared to 4.1 percent in November 2011.

To read the Orlando Sentinel article, click here.

Commercial/Multifamily Mortgage Delinquency Rates Down in Third Quarter

Our commercial lenders, buyers, and sellers have been hit hard over the last few years.  However, over the last few months, we have noticed commercial projects starting back up along 17-92 in Orlando and Winter Park.  A good sign that the economy is improving.  

The following press release from Mortgage Bankers' Association  continues the good news for all of us:
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WASHINGTON, D.C. (December 6, 2012) – Delinquency rates decreased for commercial and multifamily mortgage loans in the third quarter, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. 

“Commercial and multifamily mortgage delinquency rates for loans held by life companies, Fannie Mae and Freddie Mac all remain extremely low,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The delinquency rate on bank-held loans is at its lowest level since the beginning of 2009 and the delinquency rate for loans held in commercial mortgage-backed securities (CMBS) – while still elevated – continues to stabilize. If one removes the CMBS loans that are in foreclosure or REO, that delinquency rate is at its lowest since late 2009.” 

During the third quarter of 2012, the 60+ day delinquency rate for commercial and multifamily mortgages held in life company portfolios decreased 0.03 percentage points to 0.12 percent. The 60+ day delinquency rate for multifamily loans held or insured by Fannie Mae decreased 0.01 percentage points to 0.28 percent. The 90+ day delinquency rate for loans held by FDIC-insured banks and thrifts decreased 0.18 percentage points to 2.93 percent. The 30+ day delinquency rate for loans held in commercial mortgage-backed securities (CMBS) decreased 0.11 percentage points to 8.86 percent. The 60+ day delinquency rate for multifamily loans held or insured by Freddie Mac remained the same at 0.27 percent.

The third quarter 2012 delinquency rate for commercial and multifamily mortgages held in life insurance company portfolios was 7.41 percentage points lower than the series high (7.53 percent, reached during the second quarter of 1992). The delinquency rate for multifamily loans held by Freddie Mac was 6.54 percentage points lower than the series high (6.81 percent, reached in the fourth quarter of 1992). The delinquency rate for multifamily loans held by Fannie Mae was 3.34 percentage points below the series high (3.62 percent, reached during the fourth quarter of 1991). The rate for commercial and multifamily mortgages held by banks and thrifts was 3.65 percentage points lower than the series high (6.58 percent, reached in the second quarter of 1991). The rate for loans held in CMBS was 0.16 percentage points below the series high (9.02 percent, reached in the second quarter of 2011).

Please note: In March 2012, MBA released a DataNote covering the performance of commercial and multifamily mortgages at commercial banks and thrifts over the entire year 2011. The DataNote found that commercial and multifamily mortgages had the lowest charge-off rates of any major loan type and had delinquency rates lower than the overall book of loans and leases held by banks and thrifts. The DataNote can be found at:  www.mortgagebankers.org/research.

Construction and development loans are not included in the numbers presented here, but are included in many regulatory definitions of ‘commercial real estate’ despite the fact that they are often backed by single-family residential development projects rather than by office buildings, apartment buildings, shopping centers or other income-producing properties. The FDIC delinquency rates for bank and thrift held mortgages reported here do include loans backed by owner-occupied commercial properties.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

The analysis incorporates the same measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.

Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of the third quarter were as follows:

• Life company portfolios: 0.12 percent (60 or more delinquent);
• Freddie Mac:  0.27 percent (60 or more days delinquent);
• Fannie Mae:  0.28 percent (60 or more days delinquent);
• Banks and thrifts:  2.93 percent (90 or more days delinquent or in non-accrual);
• CMBS:  8.86 percent (30 or more days delinquent or in REO).

Differences between the delinquency measures are detailed in Appendix A.
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To view the report, please visit the following Web link: click here

Short Sales outpace Foreclosures

This recent news story is not a surprise to our office.  Our clients, both homeowners and banks, have been more successful and willing over the last year to "work it out" instead of pursuing the court ordered sale.  That is not to say that numbers are not still high in Florida for foreclosure-related sales.  Currently, RealtyTrac says Arizona continues to log the most foreclosure-related sales at 34% followed by Nevada (31%), Florida (26%), Illinois (24%) and Michigan (24%).

To view the official link, click here.
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LOS ANGELES (AP) – Dec. 6, 2012 – Sales of U.S. homes facing foreclosure are on the rise and outpacing sales of bank-owned homes, a reflection of stepped-up efforts this year by lenders to avoid foreclosing on homes with mortgages gone unpaid.

In the third quarter, sales of homes already in the foreclosure process jumped 22 percent compared to the previous quarter and a year earlier, foreclosure tracker RealtyTrac Inc. said Thursday.

Short sales, when a lender agrees to accept less than what the homeowner owes on their mortgage, accounted for 65 percent of those so-called preforeclosure sales in the quarter, the firm said.

Banks have become more amenable to short sales as an alternative to foreclosure, which can often end up leading to bigger losses, and mire lenders and borrowers in a time-consuming and expensive process.

“More and more, they’re seeing that they’re going to lose less by approving a short sale than by dealing with the foreclosure process,” said Daren Blomquist, a vice president at RealtyTrac.

Attempts to fast-track that process, particularly in states where the courts must sign off on foreclosures, led to allegations last year that many banks and mortgage servicers processed foreclosures without verifying documents. Five of the biggest U.S. banks agreed in February to pay $25 billion to settle the claims as part of a deal with federal and state officials.

In the months since, the banks have increasingly used short sales as a way to provide mortgage relief to borrowers.

The lenders have reported that they provided $26 billion in home-loan relief between March 1 and Sept. 30, with about half of that stemming from short sales.

Some banks, like JPMorgan Chase & Co., have been giving borrowers financial incentives to pursue a short sale. Others are trying to speed up the transactions, which in years past could easily take six months or more before being finalized.

“A lot of the banks right now are setting the expectation that it will take about 60 days to process, some even faster,” said Jenna Smith, a listing agent for real estate website Redfin in Chicago. “In prior years I’ve had them drag out for nine to 12 months.”

Banks also have been approving short sales for borrowers who have yet to enter the foreclosure process.

These types of short sales increased by 15 percent in the third quarter versus the previous three months, and were up 22 percent from the third quarter of last year, RealtyTrac said.

As short sales and other preforeclosure sales have become more common, they have begun to outpace sales of bank-owned homes.

Some 98,125 homes in some stage of foreclosure were sold in the third quarter, while 94,934 bank-owned homes were sold in the same period. Preforeclosures have outnumbered sales of bank-owned homes through the first nine months of the year, RealtyTrac said.

Sales of bank-owned homes rose 19 percent versus the second quarter, but fell 20 percent from a year earlier.

All told, foreclosure sales totaled 193,059 in the July-to-September period, an increase of 21 percent from the second quarter, but a drop of 3 percent from a year earlier, RealtyTrac said.

Despite the growth in short sales, foreclosure sales made up a slightly smaller share of all U.S. home sales in the third quarter. They accounted for 19 percent of all residential sales, down from 20 percent in the previous quarter, and unchanged from the third quarter of 2011.

Buyers who purchased a bank-owned home or a preforeclosure property in the third quarter got a bigger discount relative to other types of homes.

The average price of a foreclosure sale in the third quarter was 32 percent below the average sale price of non-foreclosure homes, RealtyTrac said.

That’s up from a 29 percent discount in the second quarter and a 31 percent discount in the third quarter of 2011.

Homebuyers who purchased a foreclosure sale in the third quarter paid an average of $177,430. That’s down 4 percent from the second quarter and up 3 percent from a year earlier.
Copyright © 2012 The Associated Press, Alex Veiga, AP real estate writer.

Attorney General Bondi Reminds Qualified Borrowers to Submit Claims

In a follow up to our recent post, National Foreclosure Settlement and the Big Banks, Florida borrowers who qualify and may be eligible for payment under the Settlement have been sent forms to return by January 18, 2013. 

 

This recent press release has me wondering if any of our clients will benefit from the recent $25 billion national mortgage foreclosure settlement. 

 

Read the actual News Release here.

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Attorney General Bondi Reminds Qualified Borrowers Who Lost Homes to Foreclosure to Submit Claims for Payment by January 18

TALLAHASSEE, Fla.—Attorney General Pam Bondi reminds Florida borrowers who lost their homes to foreclosure between Jan. 1, 2008 and Dec. 31, 2011 and who may be eligible for payment under the $25 billion national mortgage foreclosure settlement to file claims by Jan. 18, 2013.
Forms have been mailed to qualified borrowers, and they must be returned by Jan. 18, 2013. Borrowers should complete their claim forms and return them as soon as possible in the envelope provided, or file them online at www.nationalmortgagesettlement.com. Payment checks are expected to be mailed in mid-2013. Borrowers who believe that they may have missed their claim form because they changed their addressed recently may contact the settlement administrator at 1-866-430-8358.
Eligible borrowers had mortgages serviced by Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo, the nation’s five largest mortgage servicers that agreed to the settlement with the federal government and attorneys general for 49 states and the District of Columbia.
The settlement, which took effect in April, earmarked approximately $1.5 billion in payments for 2 million borrowers nationwide who lost their homes to foreclosure during that period and had their loan serviced by one of the settling servicers. The exact payment will depend upon the total number of borrowers who decide to participate.
Free claim form assistance available

Borrowers who have questions or need help filing their claims can contact the settlement administrator, toll-free, at 1-866-430-8358, or send questions by email to administrator@nationalmortgagesettlement.com. The information line is staffed Monday through Friday from (7 a.m. to 7 p.m. Central).
Payment won’t stop other legal claims

Eligible borrowers do not need to prove financial harm to receive a payment, nor do they give up their rights to pursue a lawsuit against their mortgage servicer or to participate in the Independent Foreclosure Review Process being conducted by federal bank regulators. More information about that program is available at www.independentforeclosurereview.com.
Eligible borrowers may get a payment from this settlement even if they participate in another foreclosure claims process. However, any payment received may reduce payments borrowers may be eligible to receive in any other foreclosure claim process or legal proceeding.
Eligible borrowers not notified should contact settlement administrator

Borrowers who believe they may qualify for a payment, but did not receive a notice because they have moved, should contact the settlement administrator directly to provide that information:
Call toll-free: 1-866-430-8358. The line is staffed Monday through Friday from (7 a.m. to 7 p.m. Central).
Email: administrator@nationalmortgagesettlement.com
Beware of scams

Borrowers should not need to pay anyone to file their claim. All homeowners should be aware of settlement-related scams. Do not provide personal information or pay money to anyone who calls or emails you claiming that they are providing settlement-related assistance. If you believe someone is conducting a settlement-related scam, contact the Florida Attorney General’s Office at 850-414-3990.
Settlement background

The national settlement followed state and federal investigations, which alleged that the five mortgage servicers routinely signed foreclosure-related documents outside the presence of a notary public and without personal knowledge that the facts contained in the documents were correct. This civil law enforcement action also alleged that the servicers committed widespread errors and abuses in their foreclosure processes.
Broad reform of the mortgage servicing process resulted from the settlement, as well as financial relief for borrowers still in their homes through direct loan modification relief, including principal reduction.
For more information about eligibility and filing a claim:

www.NationalMortgageSettlement.com
Email: administrator@nationalmortgagesettlement.com
Call toll-free: 1-866-430-8358 (hearing impaired: 1-866-494-8281). The line is staffed Monday through Friday from (7 a.m. to 7 p.m. Central).

Decisions, Decisions -Revocable Living Trust or Will?

At a recent Estate Planning consultation, we discussed the question of forming a Revocable Living Trust or a Last Will & Testament.  It's a common question and the discussion is necessary to forming the proper Estate Plan.  The answer depends on the individual, their estate, and their desires. Below is a brief discussion on the main differences of Revocable Living Trust and a Last Will & Testament.  It is not meant to be the "answer", but only a thoughtful examination. 


Revocable Living Trust 

A living trust is a written declaration and contract in which you ("grantor") transfer your property into a living trust for the benefit of yourself during your lifetime (lifetime "beneficiary") and then for the benefit of your heirs (remainder "beneficiaries"). During your lifetime, you will be the "trustee" of your living trust which means that you maintain complete control over the living trust's assets. The "successor trustee" will take control over your living trust in case of your death or incapacity. In addition, you maintain the power to change, amend or revoke your living trust at any time during your lifetime.

The main advantage for a living trust is the avoidance of probate. Probate is a state court proceeding in which your property is transferred to your heirs. A previous post, How long does it take to probate in Florida, discusses the time involved in the Florida Probate process.  Since probate only affects assets which you own at the time of your death, assets placed in a living trust are not owned by you, therefore, there is no probate on those assets. The cost to Probate will range from a percentage of the value of probate assets to an hourly fee. 

Further, probate is a court proceeding, your Will will be filed with the local Clerk and become part of the public record.  A living trust, however, is confidential and the transfer of assets from the living trust is kept from public view. When the grantor of a living trust dies or becomes incapacitated, the successor trustee administers the living trust without a "gap" period.   Under a probate proceeding, there is a "gap" period between the time of death and the appointment of an executor.

It may sound like the Revocable Living Trust is a great option for everyone.  However, in order for a Revocable Living Trust to work, all assets which are to be held in the living trust must be transferred into the living trust.  This list includes, but it not limited to:

• Real Property Deeds (lien holders must consent)
• Bank Accounts
• Partnership and Stock interests

The list can be exhausting for clients.  It is important to have a provision in the Revocable Living Trust that provides for a safety net for assets that have not been titled in the name of the living trust.  This is called a Pour-Over Will.  It provides that any assets not held in living trust will be placed into the living trust after the probate is completed.

A living trust is also more expensive in up front costs due to drafting the document and implementing it.   

Last Will & Testament

A will is a legal document that lets you tell the world who should receive which of your assets after your death. A will only takes effect upon death of the person, therefore, nothing is transferred or administered prior to death.   Without a will, the courts decide what happens to your assets and who is responsible for your kids in accordance with the Probate code.

An advantage of a will over a living trust is that probate estate is a separate taxpayer and can select a fiscal year end.   Also the decedent's creditors have a short statute of limitations time period to bring claims in a probate.  Once the period for claims has passed, those creditors are barred from asserting claims against the heirs. 



A will also allows you to name your executor, the person who will be in charge of your estate. Before you select an executor, make sure you understand the tasks he or she will need to perform, which include distributing your property, filing tax returns and processing claims from creditors. Your executor should be someone you trust completely and is willing to take on such a big responsibility.

There are limitations to wills.  It is important to know that the beneficiary designations on financial accounts, insurance policies and other assets take precedence over wills.  Make sure your beneficiary designations are up to date and reflect your current desires.

WRAP-UP

There is not one answer for everyone.  The important thing is to have a plan, seek the advice of an attorney, and make sure that your wishes will be carried through.  

***
There are many facets to a Revocable Living Trust and a Will that were not covered in the above post.  This post is meant to serve as a basic explanation of the difference between the two types of estate planning.  

The $300 Million Plan

A follow up post to our National Foreclosure Settlement and the Big Banks, Attorney General Pam Bondi announced the plans last week for Florida's $300 million.

To read the actual press release click here or the Frequently Asked Qustions section click here.
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TALLAHASSEE, Fla.—Attorney General Pam Bondi, President-designate Don Gaetz and Speaker-designate Will Weatherford today jointly announced their support for a plan for allocating the remaining $300 million that the Attorney General recovered for Floridians in the national mortgage settlement. The plan ensures that the entirety of these funds will be spent consistent with the terms of the settlement agreement, but also that the funds will be allocated through the legislative process. These settlement funds are in addition to the approximately $7.5 billion in expected relief that the national mortgage settlement provides directly to Florida homeowners.

At the next meeting of the Legislative Budget Commission, with the support of Gaetz and Weatherford, Bondi will seek approval for budget amendments to disburse $60 million of the settlement funds. Bondi anticipates proposing that the $60 million be used to fund down payment assistance for Floridians, foreclosure-related legal assistance and counseling, state court initiatives to ease the foreclosure backlog and Attorney General’s office enforcement efforts.

The balance of the funds will be allocated through the appropriations process in the upcoming legislative session. Gaetz and Weatherford have agreed to support the appropriation of approximately $200 million for housing-related purposes, consistent with the terms of the settlement agreement. Although the specific appropriations must be determined through the legislative process, possible uses of these funds include foreclosure prevention, neighborhood revitalization, affordable housing, homebuyer or renter assistance, legal assistance, counseling and other housing-related programs. Finally, consistent with the discretion afforded her under the settlement agreement, Bondi will designate approximately $40 million of the settlement funds as additional civil penalties.

“This plan gets much-needed assistance to the homeowners and communities suffering the effects of the foreclosure crisis, and ensures that the settlement funds are spent with the transparency, accountability and flexibility that comes from the legislative process,” said Bondi. “I thank President-designate Gaetz and Speaker-designate Weatherford for working together with me to implement the mortgage settlement in a way that’s in the best interests of our state.”

“I am grateful to Attorney General Bondi and Speaker-designate Weatherford for working with us on a proposal which ensures that these funds are appropriated by the legislature in a transparent and accountable manner,” said Senate President-designate Don Gaetz (R-Niceville). “Together with the approximately $7.5 billion in relief that will go directly to homeowners, this funding will play an important role in the multitude of state and federal efforts to provide relief for homeowners facing foreclosure.”

“I appreciate the hard work of Attorney General Pam Bondi and Senate President-designate Don Gaetz both in securing the settlement for distressed homeowners and for representing the interests of the state,” said Speaker-designate Will Weatherford (R-Wesley Chapel). The framework that has been outlined today will enable the Legislature to fulfill its important duty as appropriators while also directing these funds to those who have been negatively impacted. I look forward to working together in the upcoming legislative session.”

Attorney General Bondi formally entered a landmark $25 billion joint federal-state agreement with the nation's five largest mortgage servicers over foreclosure abuses and unacceptable nationwide mortgage servicing practices. In addition to the funds described above, the agreement provides direct relief to homeowners and mandates extensive reforms of the banks' mortgage servicing practices. For more information regarding the settlement, please click here: http://myfloridalegal.com/pages.nsf/Main/C13C72583D0EF5BB8525799F00595D99

Jenn Meale
Phone: 850.245.0150
jennifer.meale@myfloridalegal.com