| Legal Ideas and Information - February 2004 |
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Short Pay-Offs and Redemptions
Short pay-offs and redemptions are alternative techniques to allow an owner to close on the sale of property worth less than the debts secured by it. Depending on the circumstances surrounding a particular property and seller, either alternative may be possible which each option having its own pros and cons. A "short pay-off" or "short sale" is a transaction in which a lender agrees to accept less than it is owed to permit a sale of the property which secures its note. (Throughout these materials, the term "lender" or "lenders" refers to the collection of institutions aligned on the "lender's" side, which might include the holder of the note, a loan servicer, and a private mortgage insurance company.) HUD seems to call these sales "Pre-Foreclosure Sales." Allocation of the Dependency Exemption in Colorado Child Support
When child support is determined initially or modified, the Court can also decide who can claim the children as dependency exemptions on tax returns. According to Colorado law, the dependency exemption is allocated based on the parties' financial contributions to the costs of raising the children. This language in the Colorado child support statute has been interpreted to mean that the judge should allocate the dependency exemption based on the child support percentages shown in the child support worksheet, rather than the actual amount spent by each parent on the children. For example, if there is one child and a 75%--25% income split, the parent contributing 75% could get the deduction for the first 3 years and the other parent for the fourth year. But if the child support percentages change on a yearly basis, an annual review of the issue may be more appropriate than a long term plan for allocation of the exemption. A parent paying child support cannot receive the dependency exemption if that parent has not paid all court ordered child support for the tax year in question, or if it would not result in a tax benefit to that parent.
Payback Time - Earnest Money
Reprinted from REALTOR® Magazine ( www.realtor.org/realtormag ) by permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2002. All rights reserved. Oxymoron: Words used together that have opposite meaningsתumbo shrimp, for example. A seeming oxymoron is nonrefundable earnest money, a euphemism that some sellers use for a deposit that they intend to keep whether or not the sale goes through. A builder, for example, may ask for such a deposit up front to help offset construction expenses. The builder uses the term earnest money to avoid upsetting the buyer×¥ven though the builder has no obligation or intention of returning the money. Most of us understand earnest money to be a deposit made by prospective buyers as evidence of their intention to complete a transaction. Earnest money is often held by a neutral third party, who awaits word that the transaction has closed before forwarding the deposit to the seller. This publication is intended to provide accurate and authoritative information on the subject matter covered. It is distributed with the understanding that the publisher and distributor are not rendering legal, accounting or other professional service, and assume no liability in connection with its use. Copyright © 2004. This is an advertisement. |
IN THIS ISSUE
Personal Residence Trust You can give away your house at a great discount, freeze the value for estate tax purposes, and still continue to live in it. You may not be able to eat your cake and have it, too, but, because of recent legislative changes at the federal as well as state levels, you can now give away your house yet continue to live in it, saving you a bundle in estate and gift taxes. How It Works The basic plan requires you to deed your house to a type of trust known as a Qualified Personal Residence Trust ("QPRT"), reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (including all post-gift appreciation) passes to your children or other named beneficiaries free of any additional federal or state estate or gift taxes. If you die before the end of the period, the house will be includible in your estate for estate tax purposes. But in most cases you are no worse off than you would have been had you done nothing. Real Examples, Real Gains John, age 55, is a successful businessman with total assets worth over $2 million, including his beautiful Georgian mansion, recently appraised at $300,000. If John continues to live in the house until his death 20 years from now, the house will be worth $657,337 (based on 4% annual appreciation). The house will be included in his estate at an estate tax cost of over $360,000. Instead, John deeds his house into a QPRT, names himself as the sole Trustee, and reserves the right to live in the house for 20 years, at which time it passes to his children (or to a trust for their benefit). There will be an immediate gift of $31,980. So long as the total amount of taxable gifts made by John during his life (including the house transfer) does not exceed $675,000, no federal gift tax is currently payable. Depending on where the property is located, however, there may be some state gift tax due, e.g., $1,759 if it is located in Tennessee. In any event, at the end of the 20-year period, even though the property will then be worth $657,337, no additional taxes will be due when the house is transferred to John's children. What are the Savings? In other words, John has managed to give his children property worth $657,337 at a gift tax value of only $31,980. This results in a tax savings of almost $350,000 to his estate! How Long Should the Term Be? Meet The Attorneys Zachary N. Noffsinger Mr. Noffsinger received his Juris Doctor from Duke University School of Law in 1998. His practice emphasizes Contracts, Corporations, Securities Finance, and Business Law.
Eric R. Jaworski Mr. Jaworski received his Juris Doctor from the University of Colorado School of Law in 2003. His practice emphasizes Litigation, Real Estate and Evictions. |
