Friday, September 25, 2015

Will gives Real Property to Beneficiary/ies; Do You Need Executor to Record a Deed?

In Texas, the answer is “no”.  (If the decedent died in a county other than the one where the real property is located, a court-authenticated copy of the Will and the order admitting the will to probate needs to be recorded in the other county.)  However, Texas is a “title company state” and the new owner or owners really need a title policy that “insures” ownership to them and insures that if there is ever a challenge to ownership, including liens on the property, the title company will pay the legal fees, not the insured owners.

The beneficiary/new owner really should get a title policy as soon as the Executor indicates that he, she, or it will receive ownership of the property (that is, the estate is not insolvent and the real property will, therefore, not have to be sold to pay creditors or, in any event, the real estate is exempt from non-secured creditors of the decedent).  If the beneficiary delays a year or more after death and probate, the title company may require a deed before it will insure the title.  The title company may ask for a deed even if the beneficiary requests one soon after death and the probate of the Will.  You’ll have to decide if it’s less expensive to have the Executor’s attorney draft a deed or ask a different title company if it is willing to insure the title without requiring a deed. 

Note, that if the Will gives real property to a surviving spouse who is already on the title policy, title insurance may not be necessary.  You should review the title policy and ask the title company, or its successor if it is no longer in existence, to confirm in writing that the surviving spouse’s ownership is completely insured.  (Do not be surprised if the surviving spouse cannot find it and you have to request a copy from the title company.)

You may want to pay a title company to run a search of the real property records (“official public records”) to see if there are any liens either on the property or recorded in the name of someone with a name similar to the decedent.  For example, there may be a mechanic’s lien filed when someone was doing work on your property to insure that you paid your bill.  You may actually have paid your bill and the worker forgot to release the lien.  You will either need to get the worker to sign a release now and, if not available, find out what the title company will need in order to accept proof that the bill was paid.  (In some cases, you may need to get a court order to that effect.)  If there are, you can decide whether to deal with them currently or wait.

Friday, September 4, 2015

Opening Accounts Banks and Other Financial Institutions; Making Changes to Accounts: The Know Your Customer Rules and How One Bank is (Mis)Interpreting Them

Recently, one of the co-authors, Kathleen (Kathy) Bay encountered the following at J.P. Morgan Chase Bank (“Chase”) where Bay has a safe deposit box to hold original documents of clients and also other old accounts (including ones for children) (dating from 1987).  All Bay wanted to do was add another attorney at the firm as a signatory on the safe deposit box.  After a hearing at probate court one day, Bay and another firm attorney went to Chase.  The customer service gentleman refused to add a new signature unless Bay revealed to him all investment assets she has that were not at Chase.  The reason?  The customer service gentleman said, basically, that “I have to get this information as part of Chase’s Know Your Customer rules.  This is not Chase; the Federal Government requires it.

Bay refused to provide this information, pointing out that she had been a customer for 25 years and if Chase did not know her yet to its satisfaction, it never would.  Bay also offered to sign a statement that she had no off shore assets as she thought perhaps that was one of the concerns Chase might have.

Bay has spoken to an attorney in Chase’s general counsel’s office who stated that Federal law does not specifically require that the question about a customer’s finances needs to be asked.  However, committee members at Chase developed the list of questions so Chase can better serve all its customers by “knowing” them.  Bay noted that she had called a different bank to ask if it was asking this question; the answer was, “no”.  The counsel’s response:  Chase is the first bank to do this.  In 5 years, other banks will be following Chase’s lead.

One can only wonder, why is Chase doing this?  As a result of Chase’s involvement in the Bernie Maddoff fiasco, including consent decrees and agreements with the Feds, Chase may, as of August 1, 2014, have adopted Know Your Customer Rules that are, in Bay’s opinion, truly overreaching.  Is this a case of Chase making lemonade out of the lemons of being under great scrutiny from the Feds?  That is, if you let Chase know what else you own, will this information be used to try to get you to transfer your other assets to Chase and to sell you other products?

Be prepared, though, that if other banks do follow Chase’s lead, you may either be coerced into revealing private information that you consider to be “none of the bank’s business” or being in a position where you are unable to open a bank account or make changes to one you already have.  The silver lining?  You should be able to close an account (or safe deposit box) without revealing private information because you will no longer be a customer if you do so.

Right now, what Chase asks of a corporation is much less than what it asks of an individual.  You can create a corporation and bypass the overreaching Know Your Customer rules that way.  Being forced to create a corporation just to avoid such rules is, in the opinion of this author, yet another act of overreaching.

– Kathleen Ford Bay

Friday, August 14, 2015

Durable (Financial) Powers of Attorney, “General”

Background.  You will want to consider a durable (financial) power of attorney when you engage in estate and disability planning.  You will be giving your agent the ability to do much that you, if personally present, could do.  You may appoint your agent under a “general power of attorney” – with lots and lots of authority -- or a “limited” or “special” power of  attorney; for example, a special power of attorney may authorize your agent to sell a car or your home only.  Do not ever appoint as an agent someone you do not trust.  Some people do appoint a relative who is not really trustworthy as agent – this is probably magical thinking: “If I become incapacitated, surely Johnny Boy, my son, will see the light and behave properly.”  Really?  Would you tell your best friend to do this?

Texas has adopted the Uniform Power of Attorney Act (set forth in the Estates Code), including a form (suggested) and the “short form” powers.  For example, the short form power “real property transactions” which is on the actual power of attorney is defined in the Estates Code as granting to the agent a great deal of authority, including the power to: “sell, exchange, convey with or without covenants, quitclaim, release, surrender, mortgage, encumber, partition or consent to partitioning, subdivide, apply for zoning, rezoning, or other governmental permits, plat or consent to platting, develop, grant options concerning, lease or sublet, or otherwise dispose of an estate or interest in real property or a right incident to real property”.

If you choose all of the short forms, you will have granted so much authority to your agent that, colloquially, you will be said to have a “general power of attorney”.  (Starting January 1, 2013, you must initial before each power you want or initial at the end if you want your agent to have all of the listed powers.) 

Unless you choose, using the statutory form or a variation, to make your agent’s authority last beyond your incapacity (effective when you sign it and good even if you are incapacitated – “durable”) or become effective on your incapacity (“springing”), your agent’s authority ends if and when you become incapacitated.  Your Power of Attorney is not effective after your death.

Discussion.  Co-Agents?  Living Revocable Trust?  If you do not have someone who is trustworthy who you can appoint as an agent, consider a revocable trust (also called as a “management trust” and a “living trust.”)  With a revocable trust, you can appoint Co-Trustees and require them to act jointly or allow each to act separately.

If you have someone you trust, you also may appoint one agent or more a Co-Agents and require the Co-Agents to act jointly or allow each to act separately.

BUT,  please note that banks and other financial institutions may not want to be responsible for making sure that Co-Trustees or Co-Agents actually act together.  Recently, two children of a client of our firm were required under the power of attorney he had done years ago to act jointly.  The bank refused to honor the direction that they act jointly (apparently, due to concerns about liability).  Instead, before the bank would allow them to act at all (even jointly), the bank required that each sign an indemnification agreement confirming that the bank was not responsible for making sure that each signed checks or jointly gave transfer and other instructions and also required each to indemnify the bank against any complaints one might have against the other as a Co-Agent.

What do you do to plan for your Co-Agents and/or Co-Trustees refusing to act jointly, especially when the bank is likely not to require joint actions?  Consider asking your attorney to draft in your Power of Attorney or Revocable Trust a plan to be triggered if this happens, like granting to the Agent or Trustee who is following the rule the right to go to  court without notice to the Agent or Trustee who is taking unilateral actions and get a temporary restraining order (“TRO”); authorize the Agent or Trustee who is following the rules to invoke a mandatory mediation or arbitration to be paid for from funds of the principal (who signed the power of attorney) or Trust; include a provision that if a Co-Agent or Co-Trustee who is required to act jointly acts unilaterally, that the Agent or Trustee will be treated as having resigned and an alternate treated as succeeding as Co-Agent or Co-Trustee; and look into whether a bank will allow the Co-Agents or Co-Trustees to pen a so-called safekeeping account (by court order or otherwise) where nothing will be released to pay bills unless both have signed. 

Friday, July 24, 2015

Required Minimum Distributions in the Year Someone Dies

When a beloved family member and/or friend dies, there are many tasks that should be addressed to make sure that the decedent’s wishes for transfer of his or her assets are honored: those involving legal matters and the transfer of ownership of assets, (b) those involving clothing, furniture, and personal property, and the like for which there is no deed or title, (c)  those involving cars, motorcycles, boats, motor homes, and the like for which there is a title or certificate of ownership, (d) those involving property held by a living person and the decedent “as joint tenants with right of survivorship” or where the decedent has an account that is “payable on death” or “transfer on death” to a living person, and (e) those where you are named as a beneficiary (for example, life insurance, an IRA, a 401K).  In all of the flurry of activity, there is one aspect of IRAs that sometimes is not thought of until late in the year:  If the decedent was over 70 ½ and already receiving Required Minimum Distributions (RMDs) during life, you should check to see if an RMD was received before death.

If the decedent had not received an RMD before death, arrangements should be made for that distribution to occur, hopefully, prior to the end of the calendar year.  First, there needs to be someone who is authorized to give instructions to the custodian of the IRA.  If there is no beneficiary named to receive the IRA upon death, then the court-appointed executor (if there is a Will) or an administrator (if there is no Will or if there is no one named as executor who is able to serve) may authorize the delivery of the RMD.  (If the IRA is payable to a beneficiary other than the executor, that beneficiary may be able to give directions for distribution and will have to provide a death certificate to do so.)  The penalty for failure of the RMD to be distributed before the end of the calendar year in which the decedent died is 50% of the required RMD.  50%? 

Yes.  But, there may be an exception that applies.  Take a look at IRS Form 5329 “Additional Taxes on Qualified Retirement Plans (Including IRAs) and Other Tax-Favored Accounts”.  The IRS can grant an exemption from the 50% additional tax if the shortfall in the proper distribution is “due to reasonable error” and “reasonable steps to remedy the shortfall” are being taken.  For example, if no executor has been appointed in time to authorize an RMD before December 31 (of the year in which the decedent died) and an executor is appointed and able to request a distribution early in the next year, those circumstances are likely to be deemed to be both “due to reasonable error” and “reasonable steps” to make sure the RMD is made as quickly as possible.  In the past, the taxpayer was required to pay to the IRS the 50% penalty (additional taxes) and request both a waiver and refund.  Now, the taxpayer is not required to submit the additional taxes and request a refund.  However, until the IRS grants the waiver, the additional taxes may need to be paid and the taxpayer may want to keep on hand an amount to pay the IRS should the waiver not be granted. 

Kathleen Ford Bay

Friday, July 3, 2015

Texas Increases Allowances for Surviving Spouse and Children

Hooray for modern times! As part of the new Texas Estates Code, the Texas Legislature finally got around to increasing various exemptions and allowances for surviving family members.

Section 102.004 of the Texas Estates Code clarifies that the homestead of a decedent who is survived by a spouse or a minor child is not liable for the payment of any debts of the deceased’s estate, other than certain debts which may be secured by that homestead under the Texas Constitution – essentially, purchase money or home equity liens, ad valorem property taxes, certain materialmen’s liens, an owelty of partition, or a reverse mortgage.

Effective January 1, 2014, Chapter 353 of the Texas Estates Code sets new amounts for certain allowances that may be claimed by a surviving spouse or certain children of the deceased, prior to payment of any creditor’s claims.

Under Section 353.053, in place of a homestead under Section 102.004 (for persons who lease or otherwise do not have a suitable homestead), qualified survivors can request that the probate court set aside an allowance up to $45,000 – previously, the maximum allowance in place of the homestead was $15,000. 

In lieu of any exempt personal property, the survivors can also request the probate court set aside an allowance up to $30,000 – the previous cap on this allowance was $5,000. 

These two allowances are in addition to the “family allowance” that may be requested under Section 353.102 of the Texas Estates Code for the maintenance of the surviving spouse, minor children, and any adult incapacitated children for one year from the date of the decedent’s death. 

Effectively, the Texas Legislature now permits qualified survivors to set aside up to $75,000 (versus the previous $20,000), as well as a “family allowance” when necessary, to help provide for their care without the fear of such funds being seized by the deceased’s creditors. 

By: Cynthia W. Veidt,