Maximizing Bequests with Charitable Contributions

Maximizing Bequests with Charitable Contributions

Many Americans wish to leave a donation to their favorite charity, community foundation or nonprofit organization when they pass away. You may be one of them. Often people decide to donate by gifting a specific dollar amount or percentage from the residue of their estate. However, you could make the most of your philanthropic intention by designating your selected organization as a beneficiary of your tax-qualified retirement plan.

Qualified retirement plans are IRS-approved retirement accounts in which income accumulates, tax-deferred, over time. These types of accounts remain the leading form of a retirement account because they allow individuals to grow their pre-tax contributions over the course of their working career. Common examples of these accounts include non-Roth IRAs, employer-sponsored 401(k)s, profit-sharing plans, and public sector 403(b) plans, as well as other tax-deferred plans.

Rather than administering your retirement account as part of your estate and making a specific bequest in the form of a cash gift to the organization, you can name the organization as a direct beneficiary of your retirement account. By naming the organization as a direct beneficiary, you will notice a double tax benefit. First, your estate will not be required to pay federal estate taxes, if the value of your estate is greater than the federal estate tax exemption, because the retirement account will receive a charitable deduction. Second, charitable organizations are tax exempt, meaning that the organization is not required to pay federal or state income taxes on the gift it receives. The organization will receive the entire balance of the account, making the most of your gift.

Another tax benefit to consider arises if you intend to give part of your estate to charity and part of your estate to individual beneficiaries. When an individual beneficiary, such as a child, receives your qualified retirement account, the IRS requires the individual to pay income taxes on the distribution. Therefore, the individual would not receive the full retirement account value. In this circumstance, you should consider leaving these individuals the remaining non-qualified accounts from your estate, such as post-tax investment accounts, Roth IRAs and common stocks. By gifting qualified accounts to a charitable organization and gifting non-qualified accounts to individual beneficiaries, you will maximize the amount you leave to all beneficiaries. Being mindful about your beneficiary designations allows you the opportunity to minimize tax payments and to make the most of your legacy gift.

If you plan to leave a percentage of a qualified retirement account to a charitable organization and the remainder to a noncharitable beneficiary, you should be aware of impacts to required minimum distributions of your beneficiaries. The timeline for the required minimum distribution for the noncharitable beneficiary may be accelerated and the individual would not be able to take the required distributions over their life expectancy. You should be on the lookout for associated tax implications before finalizing your estate plan.

An estate planning attorney, such as the skilled attorneys at Anderson O’Brien, can offer guidance as you consider a charitable gift as part of your legacy to leave a lasting impact on your community or a charitable cause that is meaningful to you.

 

Which Insurance Companies Do I Have to Talk to After an Auto Accident?

Which Insurance Companies Do I Have to Talk to After an Auto Accident?

Following an auto accident, victims are often bombarded with calls from claims personnel connected with various insurance companies asking how the accident happened and what injuries were sustained. Usually, there are three different insurance companies trying to get information: (1) the liability insurer for the at-fault driver, (2) your own auto insurance company and (3) your health insurance company.

The insurance company you have no obligation to speak to and who we recommend you do not speak to is the liability insurer for the at-fault driver. Almost without fail, soon after an accident, injured drivers will receive a call from a claims person from the responsible party’s insurance company. This claims person will likely be recording the conversation and will ask questions about how the accident occurred and what injuries were sustained; rarely is this to your benefit. Being only a few days out from the collision, the injured victim will not have the police crash report and investigation findings, will have only been discharged from urgent care or the ER and not had an opportunity to see their doctor or a specialist for their injuries. In other words, the injured victim usually does not know the full extent of their injuries or the details of the accident.

In spite of this information deficit, the at-fault insurance company will use this opportunity to lock you into how the collision occurred and what your injuries are all without the benefit and protection of counsel. This is a statement that may be used against you at future depositions and trial. Worse still, there are some insurance companies who use this early opportunity to pressure you into a accepting a settlement offer.

On the other hand, you do have a duty to communicate and cooperate with your own auto insurance and your health insurance company. Your insurance policies have specific terms and conditions that you must abide by, one of which is that the insured has a duty to cooperate and inform the insurance company about the loss (i.e. the collision and your injuries). If you choose to ignore your own insurance companies, you risk them not paying for medical treatment related to the collision and possibly risk your uninsured and underinsured motorist coverages should you need them. We are often told by our clients that one of the services they appreciate most is our office’s ability to force all insurance companies to run their questions, forms and requests through our office which we handle. This allows our clients to focus on the most important thing after an accident: getting better.

 

What Is Probate?

What Is Probate?

Probate is an often misunderstood but frequently heard term in relation to the death of a loved one. Perhaps in completing your estate planning you have been advised to “avoid probate.” But what is probate and why is to be avoided?

Probate is the name of the legal process that takes place after someone dies for the purpose of the following:

  • Proving that a deceased person’s Last Will & Testament is valid, if there is one.
  • Determining and giving notice of the proceedings to the deceased person’s heirs, any beneficiaries named in the Will, and the deceased person’s creditors.
  • Identifying, inventorying and valuing what the deceased person owned when they died.
  • Determining who will receive the deceased person’s property (heirs, beneficiaries, creditors, etc.).
  • Distributing the remaining assets as the Will directs (or to the heirs identified by state statutes if no Will exists).

The process itself involves filing documents in the local probate court to have the Will admitted and to request that a Personal Representative (sometimes called, Executor) be appointed. The Personal Representative is thereafter required to continue to provide information to the Court and the other interested parties, until the assets and expenses are fully accounted for, and then will ultimately need to obtain approval to distribute the assets to those who are entitled.

Clients often want to avoid this process because it can take a great deal of time and requires legal paperwork and potential court appearances. It is often misunderstood that having a Will is necessary to avoid probate. There are numerous ways to avoid probate, but preparing a Will is not one of them. Whether or not probate is needed will be driven by the value and type of assets owned by the deceased person. An estate planning attorney can discuss the ways to avoid probate and what might be most suitable in your situation.

 

Disclosing Defects with the Real Estate Condition Report (RECR)

Disclosing Defects with the Real Estate Condition Report (RECR)

Wisconsin law has left the dark ages of caveat emptor or also known as “let the buyer beware” in the sale of residential property. The harshness of caveat emptor has been replaced by the Real Estate Condition Report or “RECR.” Basically, the RECR requires sellers to disclose their awareness of defects. What should be a simple concept is made complex by legalistic definitions. For instance, a “defect” is defined as a “condition that would have a significant adverse effect on the value of the property; that significantly impairs the health or safety of future occupants of the property; or that if not repaired, removed or replaced would significantly shorten or adversely affect the expected normal life of the premises.” It is not hard to imagine a silver-tongued lawyer arguing that just about anything is a defect under this definition. Consider the following quote:

“Houses are amazingly complex repositories. What I found, to my great surprise, is that whatever happens in the world – whatever is discovered or created or bitterly fought over – eventually ends up, in one way or another, in your house. Wars, famines, the Industrial Revolution, the Enlightenment – they are all there in your sofas and chests of drawers, tucked into the folds of your curtains, in the downy softness of your pillows, in the paint on your walls and the water in your pipes.” ― Bill Bryson, At Home: A Short History of Private Life

If Bill Bryson is right in saying that the history of the world is found within the four corners of a home, is it futile to expect a seller of a residential home to disclose defects? Not quite. In reality, the RECR is a straightforward document requiring a homeowner to check “yes, no, or N/A” to knowledge of defects concerning elements of the house, such as the roofing. 

Blindly checking “no” to all knowledge of defects is foolhardy and may violate Wisconsin law. Notably, there is also a requirement that sellers amend their RECR if defects are discoverable after completion of the RECR but before an offer is accepted. These representations are legally binding and a buyer is entitled to rely on the RECR. Often, the RECR forms the basis for a lawsuit. Any doubt about a defect should be resolved in favor of disclosure.

 

Contingency Clauses in Real Estate Contracts

Contingency Clauses in Real Estate Contracts

If you have ever bought or sold real estate, you may be familiar with the contingency clauses contained in these agreements. These clauses offer the option to back out of a sale if certain events occur. The meaning and consequences of these contingencies can be confusing for first-time buyers or sellers. Even those with experience in the field sometimes struggle to grasp the implications of contingency clauses.

To understand real estate contingencies, it is necessary to have a basic understanding of the process in which real estate transactions are completed. When a potential buyer wishes to purchase a residential property, they will present the seller with a signed “Offer to Purchase.” In Wisconsin, the WB-11 form is the standardized contract used for residential real estate sales and serves as a base from which options are chosen. This Offer will contain all of the terms of the transaction and becomes a binding legal contract when signed by the seller. The Offer does not actually transfer the property but rather begins the process, which will culminate in a closing.  At the closing, the documents are signed and the legal title to the property is transferred. Between acceptance of the Offer and the closing, the parties can agree to change the terms using an amendment, but unless both sides agree on a change, the terms in the original signed Offer will control.

The Offer lays out a series of responsibilities and deadlines for each party. These responsibilities generally consist of providing documents, making inspections and coordinating mortgage financing and title insurance. If a party does not timely complete their duties under the Offer, they are in breach of the contract. Depending on the situation, this may allow the other party to retain earnest money, which is the deposit to the seller that represents the buyer’s good faith to purchase, sue for monetary damages, or sue for “specific performance,” meaning they will request a judge to order the breaching party to fulfill their obligations. Often, the legal costs of pursuing these remedies deter the non-breaching party from pursuing them, but the potential for such legal action makes it inadvisable to assume that if something goes wrong, or if you change your mind, you can just walk away from an accepted Offer.

Because key information is sometimes not known when an Offer is accepted, most contracts contain contingencies which state that if specific events occur, then a party has the option to walk away without being in breach. If a contingency is triggered, the party backing out of the deal is not breaking the contract because the contract itself states they would not have to go forward if that event occurred.

Although some types of contingencies benefit the Seller, generally, Sellers prefer Offers with fewer contingencies because contingencies create more opportunities for the deal to fall through, leaving them with the unsold property. Buyers typically want more contingencies as it gives them flexibility if, after the Offer is accepted, something happens that makes them no longer interested in purchasing the property. What contingencies are included can be an important part of negotiations prior to the acceptance of an Offer.

The WB-11 form contains many options for contingencies. Most are preceded by a box which is checked if that contingency is to apply. If the box is not checked, that contingency is not part of the Offer. Outside of the contingencies included as options in the WB-11, additional terms may be added which make the Offer contingent upon other circumstances. With proper drafting, an Offer can be made contingent upon almost anything.

There are too many possible contingencies to describe them all here, but some of the more common contingencies are described below:

Financing Contingency. This contingency is common when the Buyer requires a mortgage to be able to purchase the property. If the Buyer is unable to obtain a mortgage for a set amount and at a set interest rate, and the Seller is not willing to offer them financing on the same terms, then the Buyer can walk away from the deal without being in breach.

Closing of Buyer’s Other Property Contingency: This contingency allows a Buyer who is in the process of selling another property, usually their existing home, to back-out of a deal if the sale of their old property does not close by a certain date. This can be very important to a Buyer; without it they may end up being forced to either breach the contract or own two homes.  Be sure to carefully think through the dates and deadlines between the two transactions when using this contingency. Even if you already have a binding Offer on your old home, consider this contingency in case the deal falls through.

Inspection Contingency: This contingency allows the Buyer to have an inspector examine the property. If they discover a “defect,” as defined by the WB-11, the Buyer may be able to back out of the deal. The seller is typically given the right to “cure” the defect to prevent the sale from falling through. For example, if this contingency is included and an inspector identifies issues with the electrical wiring, the Buyer would have the right to walk away unless the Seller is willing to pay for the issue to be corrected.

Appraisal Contingency:  Under this contingency, the Buyer may hire an appraiser to determine the value of the property. If the appraisal is less than the purchase price, the buyer can back out of the Offer. Appraisals are expensive and take time, so consider whether it is worth the expense and whether there is enough time between acceptance and closing to receive the appraiser’s report.

If you have questions about what contingencies are appropriate for your real estate transaction, how contingencies in an existing sale may interact, or how to draft custom contingency clauses, you should consult with a real estate attorney.

 

Understanding Your Auto and Home Insurance Policies Through Declarations Pages

Understanding Your Auto and Home Insurance Policies Through Declarations Pages

I have frequently talked about the importance of having adequate insurance coverage, particularly automobile and homeowner’s insurance. In the past, I have presented this topic at our firm sponsored seminars, written on the subject in my article Insurance Plays Critical Role and I have even created a video titled Importance of Having Adequate Auto Insurance.

However, determining whether you are adequately insured first requires a basic understanding of what is contained in your insurance policies and where you can locate critical information about your coverages.  While your complete insurance policy contains many pages of conditions, exclusions and endorsements, many of which are written such that they are difficult to understand, the first place you should look in your policy is the declarations pages.  The declarations pages consist of the first few pages of your policy which identify the specific automobile and homeowner’s coverages and the amounts of coverage.  Not all policies are the same for each individual, as you need to specifically pay premiums for each of the different components of coverage.  The primary categories of coverage that you typically will find in your insurance policy include the following:

Automobile Insurance Coverages

  • Bodily Injury Liability – Identifies how much coverage you have if you are responsible for causing injuries to someone else in an automobile collision.
  • Property Damage Liability – Identifies how much coverage you have if you are responsible for causing property damage to someone else in an automobile collision.
  • Medical Payment Coverage – Identifies the amount of coverage you have for injuries to you or your passengers in your vehicle sustained in an accident, regardless of who is at fault. This amount is usually $10,000.00 or less.
  • Comprehensive Insurance – Identifies coverage that helps pay to replace or repair your vehicle if it is stolen or damaged in an incident that does not involve a collision. This would include damage from fire, vandalism, or trees or hail falling on the vehicle.
  • Collision Coverage – Identifies the coverage to help pay to repair or replace your car if it is damaged in an accident with another vehicle or object.
  • Uninsured Motorist Coverage – Identifies how much coverage you have for bodily injuries you sustain in an accident as a result of the negligence of a driver who has no insurance.
  • Underinsured Motorist Coverage – Identifies how much coverage you have for injuries you sustain if you are struck by a negligent driver who has some insurance but inadequate amounts of insurance.

Homeowner’s Insurance Coverages

  • Dwelling Coverage – Identifies the amount of coverage for your actual home in the event you sustain damages due to a fire or weather event.
  • Personal Injury Liability – Identifies the amount of coverage you have if someone is injured on your property due to your negligence.
  • Personal Property Coverage – Identifies the amount of coverage you have for the actual contents of personal belongings in your home, such as furniture, appliances, etc. Your declarations page will also tell you whether or not you have replacement cost or actual cash value  Replacement cost coverage is better because then you can recover the amount it actually costs to replace the items that are damaged or lost.  Actual cash value only provides you with that amount of damages you sustained based upon the depreciated value of those items you lost.  For example, if you paid $1,000.00 for a couch that is now 20 years old, the actual cash value amount may be extremely low, such as $50.00.  However, if you had replacement cost coverage, you would be able to replace that $1,000.00 couch with a new one and you would receive the full amount for that replacement couch.  Replacement cost coverage does cost more in premium amount; however, as you can see, it is much better coverage.

Umbrella Endorsement Coverage

Umbrella endorsement coverage is extremely important and can apply to both automobile and homeowner’s coverages.  This is perhaps the most important coverage you can purchase.  For approximately $200.00 to $250.00 per year, you can add an additional $1 million or more of coverage to the following:

  • Automobile liability limits if you are at fault in an automobile collision;
  • Uninsured and underinsured motorist coverage if someone injures you in an automobile collision; and
  • Homeowner’s liability limits if you are negligent and someone is injured on your property.

In order to obtain an umbrella policy that covers all of the above, you need to specifically request this from your insurance agent.  Many companies will only sell policies that simply provide a liability umbrella policy which would add another million dollars in coverage to your liability coverage for home and auto.  However, it is extremely valuable to have the additional protection for your automobile, uninsured and underinsured motorist coverage, as well.  That is what you will need to specifically request when you speak with your insurance agent.  This would help protect you and provide additional benefits if you or others in your vehicle are injured in an automobile collision caused by someone who is either uninsured or underinsured.

If you are injured in an automobile collision or sustain significant property damage to your home or its contents, it is important for you to consult with an attorney to assist you in obtaining fair and reasonable compensation for your losses and to utilize your insurance coverage to the fullest extent.  You should review your declarations pages with your insurance agent and discuss whether or not there is a need to increase your insurance coverages.  Simply because an agent says that you have “full coverage” does not mean that you have enough insurance to cover the typical losses that our law firm sees on a daily basis.

 

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