We don't know for sure, and we probably never will, but it appears Steve Jobs has protected his estate, to the extent he can, through living trusts. A living trust is a trust established and funded during one's lifetime. Lots of trusts are established during the maker's life, but lots remain unfunded, meaning nothing was ever put into the trust. When that happens, the trust is like an empty basket -- good for nothing.
Forbes magazine reported on October 7 that real estate records from 2009 show that Jobs and his wife transferred three pieces of real estate into two separate trusts. This doesn't mean that he transferred all of his assets, such as his Disney stock, with an estimated value of $4.4 billion, because transfers of property other than real estate do not need to be recorded in public records. But it's likely he did. Someone as smart and as private as Steve Jobs probably took the proper steps to minimize his potential estate tax and protect his heirs from the publicity that would surround probate of his estate.
There is a long list of celebrities who failed to properly plan their estates. As a result, they unnecessarily lost a good part of their estates to the IRS. Some of these are Jimi Hendrix, James Brown, Steig Larsson (author of The Girl With the Dragon Tattoo), Gary Coleman, Sonny Bono and Michael Jackson.
Monday, October 10, 2011
Thursday, October 6, 2011
Mortgage Rescue Scams
With the mortgage foreclosure crisis hitting more people, scammers are out in force. One of the newer scams involves fraudulently attaching a mortgage to someone else's bankruptcy. Here's how it works.
Scammers know that one of the most powerful tools in the bankruptcy tool box is the automatic stay that prevents a creditor from taking any action against the debtor or property of the debtor's bankruptcy estate. The scammer approaches a borrower facing foreclosure and gives them the pitch that for a small fee, say $300-$500 per month, they scammer will "work with" the lender to prevent bankruptcy. The scammer tells the borrower that she needs to convey a small percentage, even 1%, of her house to another person. This other person is someone in bankruptcy, usually in another state, and has nothing to do with the scammer or the borrwer. In fact, this person is completely unaware of the scammer. But by transferring a small portion of the borrower's property to the bankrupt debtor, the borrower's property is now "property of the estate" of the innocent debtor. The scammer uses this to claim the protection of the automatic stay against the bank trying to foreclose on the borrower.
Sometimes the debtor becomes aware of this sudden new interest in real property that he never had before when the bankruptcy trustee accuses him of failing to disclose all his property. This usually happens when the bank asks for relief from the automatic stay so it can commence foreclosure against the borrower. If this happens, the scammer tells the borrower she needs to convey another fractional interest to another unknowing debtor somewhere else and the process starts again.
The bottom line is this for borrowers: It's unlikely that any of these so-called "rescue firms" can really legitimately help you. Beware of anyone who tells you that for a monthly fee they can stave off foreclosure.
Scammers know that one of the most powerful tools in the bankruptcy tool box is the automatic stay that prevents a creditor from taking any action against the debtor or property of the debtor's bankruptcy estate. The scammer approaches a borrower facing foreclosure and gives them the pitch that for a small fee, say $300-$500 per month, they scammer will "work with" the lender to prevent bankruptcy. The scammer tells the borrower that she needs to convey a small percentage, even 1%, of her house to another person. This other person is someone in bankruptcy, usually in another state, and has nothing to do with the scammer or the borrwer. In fact, this person is completely unaware of the scammer. But by transferring a small portion of the borrower's property to the bankrupt debtor, the borrower's property is now "property of the estate" of the innocent debtor. The scammer uses this to claim the protection of the automatic stay against the bank trying to foreclose on the borrower.
Sometimes the debtor becomes aware of this sudden new interest in real property that he never had before when the bankruptcy trustee accuses him of failing to disclose all his property. This usually happens when the bank asks for relief from the automatic stay so it can commence foreclosure against the borrower. If this happens, the scammer tells the borrower she needs to convey another fractional interest to another unknowing debtor somewhere else and the process starts again.
The bottom line is this for borrowers: It's unlikely that any of these so-called "rescue firms" can really legitimately help you. Beware of anyone who tells you that for a monthly fee they can stave off foreclosure.
Monday, September 19, 2011
Surrendering Real Property
A question that has come up a few times recently is a variation of "how do I surrender my house in bankruptcy?" When someone files bankruptcy, she can surrender any property that secures a debt. To "surrender" means to turn the property over to the secured creditor and walk away, receiving a discharge for whatever is owed above the value of the property surrendered. This often happens when the debtor owes more on the loan that the property is worth (a condition known as being "under water"). With personal property, such as cars, boats, home furnishings, electronics, etc., surrender is usually a matter of giving the items to the bank.
A house or any real estate is more difficult. You can't just drop it off at the bank. Even sending the bank the keys to the house isn't good enough because title to the real estate is still in your name in the county recorder's office. If you're still the owner, you could be liable if someone slips and falls on the property. You will be liable for unpaid property taxes and assessments, and you could be fined for not maintaining the property, such as by shoveling the snow in winter or mowing the lawn in the summer.
Some people have tried signing a quitclaim deed and recording it. That might work, but there is a concept in real estate law that requires a deed to be accepted to be valid. Acceptance means the grantee (the bank in this case) willingly takes the deed. Simply recording the deed may not be valid acceptance.
As banks become overwhelmed with properties that are under water, many of them simply don't know what to do. As a result, they might not start and complete foreclosure in a timely manner. This leaves the surrendering borrower in limbo. She has said she doesn't want the property, but she can't get rid of it. The only solution might be to file a motion with the bankruptcy court to force the creditor to accept a deed, thereby getting it out of the debtor's name. The worst thing to do is ignore the situation.
A house or any real estate is more difficult. You can't just drop it off at the bank. Even sending the bank the keys to the house isn't good enough because title to the real estate is still in your name in the county recorder's office. If you're still the owner, you could be liable if someone slips and falls on the property. You will be liable for unpaid property taxes and assessments, and you could be fined for not maintaining the property, such as by shoveling the snow in winter or mowing the lawn in the summer.
Some people have tried signing a quitclaim deed and recording it. That might work, but there is a concept in real estate law that requires a deed to be accepted to be valid. Acceptance means the grantee (the bank in this case) willingly takes the deed. Simply recording the deed may not be valid acceptance.
As banks become overwhelmed with properties that are under water, many of them simply don't know what to do. As a result, they might not start and complete foreclosure in a timely manner. This leaves the surrendering borrower in limbo. She has said she doesn't want the property, but she can't get rid of it. The only solution might be to file a motion with the bankruptcy court to force the creditor to accept a deed, thereby getting it out of the debtor's name. The worst thing to do is ignore the situation.
Tuesday, August 30, 2011
Bankruptcy Exemptions
I was faced with an interesting question from a client this week. Up until recently ago he lived in California. For six years he has owned a condo in Utah. Four months ago he moved to Utah and now lives in the condo. He needs to file bankruptcy and wants to know which state's exemptions, Utah or California, he can use. He wants to use California because their homestead exemption is $75,000 whereas Utah's is $20,000.
Section 522 of the Bankruptcy Code says that a person uses the exemptions in the state where he has had his domicile for the past 730 days (two years), unless the person hasn't lived in a single state for that time. If, like this person, a debtor has lived in two or more states in the past two years, then he uses the exemptions in the state where he lived the longest portion of the 180 days immediately preceding the two year period. This convoluted and confusing statute is part of the BAPCPA enacted in 2005 and its purpose is to prevent debtors from moving to states with more liberal exemption laws and then filing bankruptcy.
In this case, section 522 helps my potential client because he lived in California for the full 180 days prior to the two year period back to August 2009. So he will get to claim the California exemption even on his condo in Utah.
Section 522 of the Bankruptcy Code says that a person uses the exemptions in the state where he has had his domicile for the past 730 days (two years), unless the person hasn't lived in a single state for that time. If, like this person, a debtor has lived in two or more states in the past two years, then he uses the exemptions in the state where he lived the longest portion of the 180 days immediately preceding the two year period. This convoluted and confusing statute is part of the BAPCPA enacted in 2005 and its purpose is to prevent debtors from moving to states with more liberal exemption laws and then filing bankruptcy.
In this case, section 522 helps my potential client because he lived in California for the full 180 days prior to the two year period back to August 2009. So he will get to claim the California exemption even on his condo in Utah.
Thursday, August 18, 2011
Bankruptcy Preparers
I recently joined an online forum dedicated to answering questions about bankruptcy. One of the more common questions is along the lines of "Can I do a bankruptcy myself?" Underlying this question is the concern that a person already strapped for money is being asked to pay $1,000 - $3,000 or more to have a lawyer handle the bankruptcy. What clients often see is only the finished product, a stack of papers about 1/2" thick, that constitutes their petition and supporting schedules. How hard can it be to fill out some papers, they ask?
Some want to go even farther and get someone, called a bankruptcy preparer, to fill out the papers for them. Bankruptcy preparers are expressly permitted by the Bankruptcy Code, but there are a number of things preparers can't do, if they're following the rules. First, they can't give legal advice. In other words, they can't tell you what to put down. They can only put down what you tell them. Secondly, they can't go with you to court. You're on your own there. Third, once they finish preparing your schedules, they are done. They have no further interest in you or your case because they can't have an interest. All they can do is fill out paperwork.
Bankruptcy is one of the most complicated legal processes there are. It is far more complex than a divorce, a will, a DUI or most litigation. The 2005 Bankruptcy "Reform" Act made it even more complex. If you don't know what you are doing, you can fail to claim exemptions you're entitled to, meaning you can lose property you are able to keep; you can incorrectly fill out the Means Test, meaning you might think you don't qualify for Chapter 7 when you really do; you can fail to respond to a motion, resulting in something bad happening, such as having your discharge denied; and you can even be guilty of bankruptcy fraud, meaning you can lose your right to a discharge and even go to prison.
Think of it this way. You're trying to get rid of maybe hundreds of thousands of dollars of debt and gain a chance at starting your life over, a chance that comes along only once every eight years at best. Isn't it worth $2,000 to get it done right?
Some want to go even farther and get someone, called a bankruptcy preparer, to fill out the papers for them. Bankruptcy preparers are expressly permitted by the Bankruptcy Code, but there are a number of things preparers can't do, if they're following the rules. First, they can't give legal advice. In other words, they can't tell you what to put down. They can only put down what you tell them. Secondly, they can't go with you to court. You're on your own there. Third, once they finish preparing your schedules, they are done. They have no further interest in you or your case because they can't have an interest. All they can do is fill out paperwork.
Bankruptcy is one of the most complicated legal processes there are. It is far more complex than a divorce, a will, a DUI or most litigation. The 2005 Bankruptcy "Reform" Act made it even more complex. If you don't know what you are doing, you can fail to claim exemptions you're entitled to, meaning you can lose property you are able to keep; you can incorrectly fill out the Means Test, meaning you might think you don't qualify for Chapter 7 when you really do; you can fail to respond to a motion, resulting in something bad happening, such as having your discharge denied; and you can even be guilty of bankruptcy fraud, meaning you can lose your right to a discharge and even go to prison.
Think of it this way. You're trying to get rid of maybe hundreds of thousands of dollars of debt and gain a chance at starting your life over, a chance that comes along only once every eight years at best. Isn't it worth $2,000 to get it done right?
Tuesday, August 16, 2011
Living Reality?
I follow a number of bankruptcy blogs and today read a great post by a bankruptcy attorney in Kansas City, Missouri, about reality and bankruptcy. Rachel Foley makes the point that the so-called "reality" shows have twisted our view of the world. Many of us try to emulate any number of people in these shows and end up both spiritually and financially bankrupt. You can read Rachel's entire post here:
http://www.bankruptcylawnetwork.com/trying-to-live-like-a-reality-star-may-lead-to-bankruptcy/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BankruptcyLawNetwork+%28Bankruptcy+Law+Network%29
One of the key points in her post is that bankruptcy is designed to give people a fresh start, and you can't make a fresh start by continuing to spend more than you make. You can get rid of your debt, but if you continue to live beyond your means, in five years you'll be in debt again. Bankruptcy requires some hard decisions and may involve some pain as you give up a lifestyle that you can't support. The client who says, "I want to get out of debt but I don't want to give up my boat" won't make a fresh start because he hasn't realized that owning a boat just isn't in the cards for him right now.
If you're not willing to engage in some soul-searching and make some hard choices, bankruptcy isn't a fresh start. That might sound harsh, but that is reality.
http://www.bankruptcylawnetwork.com/trying-to-live-like-a-reality-star-may-lead-to-bankruptcy/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BankruptcyLawNetwork+%28Bankruptcy+Law+Network%29
One of the key points in her post is that bankruptcy is designed to give people a fresh start, and you can't make a fresh start by continuing to spend more than you make. You can get rid of your debt, but if you continue to live beyond your means, in five years you'll be in debt again. Bankruptcy requires some hard decisions and may involve some pain as you give up a lifestyle that you can't support. The client who says, "I want to get out of debt but I don't want to give up my boat" won't make a fresh start because he hasn't realized that owning a boat just isn't in the cards for him right now.
If you're not willing to engage in some soul-searching and make some hard choices, bankruptcy isn't a fresh start. That might sound harsh, but that is reality.
Monday, June 27, 2011
Common Estate Planning Mistakes
When it comes to estate planning, people make mistakes most commonly in one of two areas: First, they fail to have any kind of estate plan at all. Secondly, once they have a plan, they forget about it.
An estate plan is not a static document because life isn't static. Circumstances change. Asset values go up or, as is more common in recent years, down. Divorces, remarriages, new children, deaths, selling assets, buying new assets -- all of these things can make the best estate plan meaningless. An outdated estate plan can leave your family vulnerable, unable to pay estate taxes, for example, or even unable to pay funeral expenses because of lack of liquidity.
Any time you have a change in your life you should review your estate plan. If this is done periodically, the changes will be minimal, but the savings, not only in dollars but in hurt feelings and even breaking up of a family, can be huge.
An estate plan is not a static document because life isn't static. Circumstances change. Asset values go up or, as is more common in recent years, down. Divorces, remarriages, new children, deaths, selling assets, buying new assets -- all of these things can make the best estate plan meaningless. An outdated estate plan can leave your family vulnerable, unable to pay estate taxes, for example, or even unable to pay funeral expenses because of lack of liquidity.
Any time you have a change in your life you should review your estate plan. If this is done periodically, the changes will be minimal, but the savings, not only in dollars but in hurt feelings and even breaking up of a family, can be huge.
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