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By Matthew A. Quick In the case of Bjork v O'Meara the court held that the limitation period for will contests as provided for in the Probate Act (6 months from notice/publication), applies to an action for tortious interference with testamentary expectancy.
The lesson: when someone has a problem with an estate, don't delay! Be sure to talk with an attorney as soon as possible.
By Matthew A. Quick The case of Rush University Medical Center v Sessions opined that a decedent's transfer of assets to his self-settled spendthrift trust may be set aside and a creditor may reach trust assets under the Fraudulent Transfer Act, 740 ILCS 160/1, et seq., which requires a creditor to satisfy conditions of intent, thus, the common law rule that self-settled trusts are per se fraudulent requires the additional intent element to satisfy an action under the Fraudulent Transfer Act. In addition to an action under the Fraudulent Transfer Act, a creditor may maintain an action under common law that seeks to set aside self-settled trusts in all instances with respect to existing or future creditors.
By Matthew A. Quick There are two main ways a state can, and in some circumstances must, reclaim expenses paid on behalf of a Medicaid recipient. The first is a Medicaid Lien, which gives states the ability to recover the expenses of long-term care of a Medicaid recipient by placing a lien on the home of the Medicaid recipient. The second is Estate Recovery, which is the process employed by states to recover the expenses of long-term care paid on behalf of a Medicaid recipient where the state acts as a creditor against the Medicaid recipients estate, post-death.
MEDICAID LIENS
Medicaid Liens typically apply only to the homes of permanently institutionalized individuals. A permanently institutionalized individual is one who cannot reasonably be expected to return home. A Medicaid Lien has priority over other people who claim an interest to a Medicaid recipient's home and its priority over other liens is determined by state law.
There are restrictions on the placement of Medicaid Liens. These restrictions are intended to protect homes when they are needed by Medicaid recipients or certain close family members. The restrictions follow: The Medicaid recipient must be deemed permanently institutionalized; and No lien may be placed if any of the following relatives of the Medicaid recipient live in the home: 1. A spouse; 2. A child under 21, or a blind or permanently disabled child of any age; and 3. A sibling with an equity interest in the home who has lawfully resided in the home for at least one year before the Medicaid recipient’s admission to a medical institution.
A Medicaid Lien does not interfere with the Medicaid recipient’s use of the home. However, if a Medicaid recipient attempts to transfer the home that has a Medicaid Lien, states can require the Medicaid recipient's equity in the home be used to pay the expense of the state's Medicaid expenditures.
ESTATE RECOVERY
Estate Recovery occurs after a Medicaid recipient's death, during the settlement of the deceased Medicaid recipient's estate. Estate Recovery can apply to personal property or real estate, but most commonly it involves the Medicaid recipient's home.
There are restrictions on Estate Recovery, which are again intended to protect homes when they are needed by certain close family members. The restrictions follow: 1. When there exists a surviving child who is under age 21, or a blind or disabled child, no matter where he or she lives (Estate Recovery may take place when the child no longer meets these criteria); 2. When a sibling with an equity interest lives in the home who has lawfully resided in the home for at least one year before the Medicaid recipient’s admission to a medical institution and continuously since; 3. When an adult child lives in the home who has lawfully resided in the home for at least two years before the Medicaid recipient’s admission to a medical institution and continuously since and can establish that he or she provided care that may have delayed the recipient’s admission to the nursing home or other medical institution; and 4. During the lifetime of the surviving spouse, no matter where he or she lives.
In these restricted instances, the survivor can typically inherit the home and other assets to use as they wish. However, the state may place a lien or file a claim against the survivor for payment of the Medicaid expenditures upon the death of the survivor.
By Matthew A. Quick A new law, which took effect November 23, 2011, and is codified at 735 ILCS 5/8-2001.5, creates a procedure and a form to allow certain family members access to the medical records of a family member who has passed without being forced to initiate a court proceeding. The new law allows a surviving spouse to make a request for the records or, if there is no surviving spouse, then an adult child, a parent, or an adult sibling may make the request.
By Matthew A. Quick We seek to save, even while spending. With a little estate planning, we can continue this trend by saving on the tax imposed on the sale of our main home. It is understood that most of us do not currently pay taxes when our homes are sold, which is due to an exclusion that is given by the government. This exclusion is limited, though, and without some attention we, or our loved ones, could inadvertantly pay a significant tax on something that could have easily been avoided.
The Absolute Basics
The amount of federal tax on the sale of someone's primary residence is determined by taking the amount realized (the proceeds from the sale of the home) and reducing it by the adjusted basis (the cost of the home). If the difference is a positive number, then there is a gain and a gain is treated as income, which can be taxed.
On the other hand, if the difference is a negative number, then there is a loss. Typically, losses can be deducted from taxable income, which reduces the amount of income taxed. However, a loss taken on the sale of a primary residence cannot be deducted from taxable income. For this reason, this article will not further contemplate losses.
Due to a gain exclusion (which will be covered below), tax is normally not paid on the sale of a primary residence. In order to talk about a gain exclusion, we have to talk about gain and in order to figure gain, we have to talk about adjusted basis.
Determining Adjusted Basis
Adjusted basis is the benchmark of an investment. It is the point of reference when determining the cost of an investment, which is further used to determine whether the value of the investment went up or down.
The first factor in the adjusted basis calculation is to determine how the owner got the home. If the owner bought it or built it, then the adjusted basis is the cost of the purchase (down payment and loans) or build (cost of construction). If the owner got it as a gift, typically, the adjusted basis is the same as the previous owner's. If the owner got it as inheritance, typically, the adjusted basis is the fair market value of the home on the date of the decedent's death.
NOTE: If you owned your home jointly with your spouse and your spouse has passed, your basis in the home will change. The new basis for the half interest that you receive from the deceased spouse will be one-half of the fair market value on the date of death. The basis in your half will remain one-half of the adjusted basis determined from the initial adjusted basis. Your new basis in the home is the total of these two amounts. An example from the IRS website follows:
Your jointly owned home had an adjusted basis of $50,000 on the date of your spouse's death, and the fair market value on that date was $100,000. Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value).
NOTE: Some basis situations are not contemplated in this article, such as adjusted basis when receiving property in a divorce settlement, adjusted basis when a home is built using insurance proceeds, etc. If you have a question about a certain basis situation, please contact an attorney.
The second factor is to add to the adjusted basis the costs of getting the home, called settlement fees or closing costs. These costs include installation of utilities, abstract of title fees, legal fees, recording fees, survey fees, transfer taxes, title insurance, certain real estate taxes, any amounts the seller owes that the buyer agrees to pay, etc. NOTE: not all settlement fees or closing costs may be used to adjust basis. If you have a question about a certain fee, please contact an attorney.
The third factor is to add to the adjusted basis additions and improvements to the home. In order to qualify as an addition or improvement that can be added to the adjusted basis, the addition or improvement must have a useful life of more than one year. This can include basic additions and improvements (new or improved bathroom, new or improved deck, new or improved kitchen, etc.), funds expended for special assessments for local improvements (a condo special assessment for a new roof), as well as amounts spent after a casualty to restore damaged property.
NOTE: there are several factors that decrease the adjusted basis that are not contemplated in this article, which may lead to greater gain (discharge of some or all of the debt incurred for purchase or development of the home, insurance payments for casualty losses, residential energy credits claimed, etc.). If you have a question about a certain deduction in adjusted basis, please contact an attorney.
Determining Gain
Again, to determine the amount of gain, take the amount realized and reduce it by the adjusted basis. To calculate the amount realized, take the selling price and subtract any selling expenses and personal property that was sold with the home. Selling expenses can include real estate broker commissions, advertising fees, legal fees, etc. If you have a question about selling expenses, please contact an attorney.
How about a few examples?
Example One: Home Was Purchased Take the amount realized (let's say the selling price was $505,000 and the amount of selling expenses and the personal property that was sold with the home is $5,000 ($505,000 - $5,000 = $500,000)), which is $500,000, and reduce it by the adjusted basis from the purchase (let's say the house was purchased for $130,000, the settlement fees and closing fees total $3,000, and there was an extra room added for $17,000 ($130,000 + $3,000 + $17,000 = $150,000)), which is $150,000. The total gain on the home would be $350,000.
Example Two: Home Was Gifted During the Original Owner's Life Assume the same amount realized from Example One ($500,000) and reduce it by the adjusted basis from the original owner, since the property was given during the original owner's life (let's say the original owner's adjusted basis was $50,000 and there was an extra room added by the subsequent owner for $20,000 ($50,000 + $20,000 = $70,000)). The total gain on the home would be $430,000.
Example Three: Home Was Inherited Assume the same amount realized from Example One ($500,000) and reduce it by the adjusted basis, which would be the fair market value on the date of the previous owner's death (let's say the fair market value on the date of the previous owner's death is $420,000 and there was an extra room added by the subsequent owner for $20,000 ($420,000 + $20,000 = $440,000)). The total gain on the home would be $60,000.
The Gain Exclusion
After calculating the gain, let's explore the gain exclusion. To qualify for the gain exclusion, an owner must have owned the home for at least two years and lived in the home as the owner's main home for at least two years during the previous five years. If the owner meets the exclusion, then the owner can exclude up to $250,000 if filing a single return, and $500,000 if married and filing a joint return.
Calculating the Tax
Let's determine the tax of the previous examples for a single person and a married couple assuming a 15% long term capital gains tax:
Example One Gain was $350,000. A single person using the exclusion would have a gain of $100,000 and a tax of $15,000. A married couple using the exclusion would have a gain of $0 and a tax of $0.
Example Two Gain was $430,000. A single person using the exclusion would have a gain of $180,000 and a tax of $27,000. A married couple using the exclusion would have a gain of $0 and a tax of $0.
Example Three Gain was $60,000. A single person using the exclusion would have a gain of $0 and a tax of $0. A married couple using the exclusion would have a gain of $0 and a tax of $0.
Taking from The Examples
A quick analysis of the amount of tax in each example would yield the understanding that a higher adjusted basis, thus a lower gain, is key to minimizing tax. People will gift their property during their lives, which can be a big mistake (they are also gifting their assumably low basis). There are so many other easy ways to gift property, than just outright, that would carry the benefit of a stepped up basis and reduction of tax. A reduction that could possibly be several thousand dollars.
Please feel free to contact me for any further explanation of this article or to answer any questions; I am always happy to help.
By Matthew A. Quick A very effective and efficient estate planning tool has been made available in Illinois as of January 1, 2012, especially suited for people who want to make an outright distribution of their property without the protections of a trust. A new Illinois law, called the Illinois Residential Real Property Transfer on Death Instrument Act, at 755 ILCS 27/1, et seq., allows owners to transfer their Illinois residential real estate outside of probate using a prerecorded instrument, which is akin to a deed, but referred to in the new law as a "Transfer on Death Instrument." Practically speaking, this law allows an owner to indicate who should be the beneficiary of certain real estate before the owner's passing. Upon the death of the owner, the property will simply pass to the beneficiary with minimal administration (basically all that is required is the filing of an executed form, there is no requirement of probate and no requirement of a trust arrangement).
Highlights of the new act: The real estate must be residential (a building with less than 4 units, a condo, etc.); The instrument will always be revocable, even if contrary language is contained in the instrument; The beneficiaries, but not creators of the instruments, can be business entities; and The owner may deal with his or her residential real estate during his or her life without restriction.
The instrument: It must meet the requirements of a properly recordable deed and be witnessed (witnessed in the same way as a last will and testament, which is different from the execution of a deed); It must state that the transfer is to occur at the owner's death; and It must be recorded with the recorder before the owner's death.
Since the statute did not dictate any forms for use, please consult an attorney to draft an instrument if you are interested. When utilized correctly, a Transfer on Death Instrument can be an extremely efficient means of transferring property without the use of a trust arrangement or the probate process and would make a great addition to a basic estate plan.
By Matthew A. Quick In the case of Anderson v Kohler, the court held that an oral contract to sell a piece of property was not enforceable, because price and time-for-performance terms were indefinite, and no performance was demanded, nor were any funds tendered, within a reasonable time.
NOTE: a written contract should always be used during a real estate transaction. Without it, no enforceable promise is made.
By Matthew A. Quick Before going through the process of drafting, printing, signing and traveling to file your document (or sending it off in the mail), be sure it complies with the following, pursuant to MCL 565.201, or the Register of Deeds will not accept it:
1. The name of each person purporting to execute the instrument is legibly printed, typewritten, or stamped beneath the original signature or mark of the person.
2. A discrepancy does not exist between the name of each person as printed, typewritten, or stamped beneath their signature and the name as recited in the acknowledgment or jurat on the instrument.
3. The name of any notary public whose signature appears upon the instrument is legibly printed, typewritten, or stamped upon the instrument immediately beneath the signature of that notary public.
4. The address of each of the grantees in each deed of conveyance or assignment of real estate, including the street number address if located within territory where street number addresses are in common use, or, if not, the post office address, is legibly printed, typewritten, or stamped on the instrument.
5. Each sheet of the instrument must comply with all of the following requirements: (a) Has a margin of unprinted space that is at least 2-1/2 inches at the top of the first page and at least 1/2 inch on all remaining sides of each page. (b) Displays on the first line of print on the first page of the instrument a single statement identifying the recordable event that the instrument evidences. (c) Is electronically, mechanically, or hand printed in 10-point type or the equivalent of 10-point type. (d) Is legibly printed in black ink on white paper that is not less than 20-pound weight. (e) Is not less than 8-1/2 inches wide and 11 inches long or more than 8-1/2 inches wide and 14 inches long. (f) Contains no attachment that is less than 8-1/2 inches wide and 11 inches long or more than 8-1/2 inches wide and 14 inches long.
By Matthew A. Quick When inspecting the deed to property, the buyer may find the word "Trustee" following the name of the person purported to be the trustee of a trust managing the property, but if the deed contains no other reference to a trust or trust powers, it does not itself constitute notice of a trust. Michigan Land Title Standard 8.2.
Michigan law provides that when an express trust is created, but is not contained or declared in the deed to the trustees, and the trustees then convey the property to a purchaser (for valuable consideration and without notice of the trust) the title to the property shall vest in the purchaser for value. MCL 555.20.
In sum, more than just the word "Trustee" after the name of the trustee in the deed is required to give notice that the subject property may only be conveyed pursuant to the rules of a trust.
By Matthew A. Quick Remember trustees, if a trustee of an express non-testamentary trust directly or indirectly conveys trust real property to himself or herself in an individual capacity, the title acquired is not marketable unless the trust instrument authorizes the conveyance. Michigan Land Title Standard 8.7.
By Matthew A. Quick Before acting on the hope of reconstructing your condo, consider what the court held in Picerno v 1400 Museum Park Condominium Association. Owners of adjacent condo units sought to construct a common front door in the hallway of the condo complex and connect their two entrances. The court held that particular modification would diminish ownership interests of other condo unit owners, per declarations that each owner has an undivided interest in common elements. The Condominium Property Act requires that renovations are subject to limitations in condominium instruments, therefore the condo owners that wanted to renovate should have complied with the requirements of the condo declarations, which in this case, were to seek approval of board and of other condo unit owners.
By Matthew A. Quick Avoiding probate seems to be the goal in everyone's mind and, most often, for good reason. Although probate may be necessary at times, it can be time consuming, public and costly (with probate court fees and costs and publication fees alone averaging approximately $800 for an estate with property worth $200,000).
Remember, probate is the court process of distributing the property of someone's estate (what someone owns at death). If there is a will, the probate process distributes property pursuant to it. If there is not a will, the probate process distributes property pursuant to state law. A common misconception is that a will allows an estate to avoid probate. In fact, the opposite is true. In order for a will to be used, it MUST go through the probate process.
There are two main alternatives to relying on probate (that is relying on only a will or nothing at all). The first is the use of a trust, which is an agreement that requires a trustee to hold property for the use and benefit of someone else. Trusts are a great utility for families with loved ones that have special needs or minor children, because of certain protections and distribution provisions that are offered. However, sometimes a trust is not necessary.
If someone has basic wishes for distribution of his or her estate, designating beneficiaries on the titles of the property he or she wish to distribute is the effective and efficient alternative. Beneficiary designation works in the following way: as for a deposit account (checking, savings, investment), a "Transfer on Death" provision can be added allowing the owner of the account to give the funds of the account to another upon his or her death; as for a house, a deed can be written to create an interest for someone else upon death by use of a Lady Bird provision (a provision that states the owner shall own the real estate for his or her life and do with it whatever he or she pleases, but if the owner continues to own the real estate upon death, the real estate shall be transferred to certain beneficiaries); as for vehicles, a form can be filed with the Secretary of State by a spouse or heir (for more info on this click here); and personal property may be transferred before death or entrusted to someone to help distribute it after death.
Ask your attorney to help because beneficiary designation can be a bit daunting, but, if done correctly, it can save time and money.
NOTE: a will should always be prepared as a safety net, even if a trust or beneficiary designation exists. If an estate is planned to avoid probate, and organized appropriately, the will is not used.
By Matthew A. Quick
For a more general article on real estate tax proration go here.
Real estate taxes in Cook County are annually paid in two installments (typically due about March 1st and August 1st) and are paid in arrears, which means the taxes paid in 2018 are for taxes accrued in 2017. Cook County has adopted an accelerated billing method, which means the first installment of taxes is 55% of the previous year's total tax amount. It is considered accelerated billing because a tax is levied on real estate without the County ascertaining the tax rates (in other words, a portion of the tax is paid before the actual amount of tax is calculated). Therefore, the first installment of taxes alone cannot be used to determine the entire year's tax obligation, because the entire year's tax obligation has not yet been calculated.
To prorate Cook County taxes for a home sale, look to the last ascertainable full tax year. For example, if a home sale occurred in May of 2018, at a time when the taxes for 2017 were being paid, then 2016 will be the last fully ascertainable tax year, because the 2017 taxes had not yet been calculated (bills are typically published in June showing the full year tax less the March payment). Once the most recent full tax year has been found, look to the real estate contract to determine the proration rate (typically between 105% and 110%). Finally, determine the closing date and count the number of days into the year the date represents (June 15th is 166 days). Let's prorate!
Assume that the closing date was set for June 15, 2018. The last fully ascertainable tax year was 2016 and the total tax for that year was $10,000. We will assume a proration rate of 110%. We know the March 2018 payment was in the amount of $5,500 (55% of the last full ascertainable tax year).
Second Installment for 2018 is determined by multiplying the last fully ascertainable tax year ($10,000) by the 110% proration factor (10,000 x 1.10 = 11,000) and subtracting the amount already paid in March payment (11,000 - 5,500 = 5,500). Thus, the tax proration credit for the 2nd installment of 2017 taxes (paid in 2018) would be $5,500.
The proration for the days leading up to closing is determined by again multiplying the last fully ascertainable tax year ($10,000) by the 110% proration factor (10,000 x 1.10 = 11,000). Determine the amount of days from January 1, 2018, to June 15, 2018 (166 days). Reduce the amount of the total prorated tax ($11,000) to the amount of tax owed per day ($11,000/365 = 30.137). Multiply the amount of days by the amount of tax per day (166 x 30.137 = $5,002.74). Thus, the prorated amount for the days spent at the property for 2018 (to be paid in 2019) would be $5,002.74.
The total amount of tax based upon this proration would be $10,502.74 ($5,500 + $5,002.74).
The tax proration is credited from the seller to the buyer at closing, because, as noted above, the taxes will not become due until a later date.
By Matthew A. Quick The court in In re Estate of Grace Ellis, Deceased, held that a tort claim for intentional interference with expectancy of inheritance is not limited by the 6 month limitation period of the Probate Act where a charitable entity was unaware of its bequest in prior will until two years after later will had been admitted to probate, and thus did not choose to forgo opportunity to contest probated will, as it never had that opportunity.
By Matthew A. Quick The court in Glavinskas v William L Dawson Nursing Center, Inc, held that a disabled person is not accountable for negligence of his representatives. The disabled person's guardian and attorney in a personal injury suit did not adequately protect the disabled person's interests and the court allowed the disabled person to pursue their claim regardless of the negligence of the guardian and attorney.
By Matthew A. Quick Terminating the lease of a tenant can be tricky, mainly because of the rules involved. The situations where particular attention needs to be paid concern tenancies from year to year, month to month, and week to week (these tenancies are also known as a periodic tenancies).
If a periodic tenancy is year to year and does not involve farmland, 735 ILCS 9-205 states that:
60 days' notice, in writing, shall be sufficient to terminate the tenancy at the end of the year. The notice may be given at any time within 4 months preceding the last 60 days of the year.
If a periodic tenancy is year to year and involves farmland, 735 ILCS 9-206 states that:
The notice to quit shall be given in writing not less than 4 months prior to the end of the year of letting. Such notice may not be waived in a verbal lease.
The statute then prescribes the following notice:
You are hereby notified that I have elected to terminate your lease of the farm premises now occupied by you, being (here describe the premises) and you are hereby further notified to quit and deliver up possession of the same to me at the end of the lease year, the last day of such year being (here insert the last day of the lease year).
Alternative rules exist if the real estate involved is farmland and the lessor is a life tenant.
For a periodic tenancy from week to week, where the tenant holds over without special agreement, 735 ILCS 9-207 provides, "The landlord may terminate the tenancy by 7 days' notice, in writing, and may maintain an action for forcible entry and detainer or ejectment." Further, involving periodic tenancies other than week to week that are less than one year, the statute provides, where the tenant holds over without special agreement, the "The landlord may terminate the tenancy by 30 days' notice, in writing, and may maintain an action for forcible entry and detainer or ejectment."
735 ILCS 9-208 further states:
Where a tenancy is terminated by notice, [under the sections detailed in this article], no further demand is necessary before bringing an action under the statute in relation to forcible detainer or ejectment.
By Matthew A. Quick If you are looking for easy, how about property automatically transferring to a beneficiary upon the owner's death, without probate or any other administration. Deposit accounts (checking, savings) can have transfer on death provisions, so too can individual retirement accounts and life insurance. When it comes to vehicles, state law provides an opportunity to designate a beneficiary right on the title in the event the owner dies. 625 ILCS 5/3-104 provides:
The Secretary of State shall designate on the prescribed application form a space where the owner of a vehicle may designate a beneficiary, to whom ownership of the vehicle shall pass in the event of the owner's death.
Further, 625 ILCS 5/3-107 provides:
The Secretary of State shall designate on a certificate of title a space where the owner of a vehicle may designate a beneficiary, to whom ownership of the vehicle shall pass in the event of the owner's death.
If it fits into your estate plan, visit the Secretary of State to designate a beneficiary on your title. This process provides a great alternative to placing a vehicle in trust or having joint vehicle owners (too much liability!).
If, however, a beneficiary was not designated prior to the passing of a decent, consider the use of a small estate affidavit or attorney's affidavit. More information can be found by clicking here: Vehicle Title Transfers . Here is the Illinois Secretary of State Small Estate Affidavit.
The lesson: There are easier alternatives to transferring a vehicle than opening a probate estate. Please contact me with any questions.
By Matthew A. Quick The court in Reger Development, LLC v National City Bank, found that a bank may require a borrower to make full repayment on a commercial loan even though the borrower was current on the note at time the bank made demand. The terms of the promissory note in this case allowed the bank to make demand for full repayment at any time, and a duty to act in good faith, relied upon by the borrower, does not apply to lenders seeking payment on demand notes.
By Matthew A. Quick Michigan law provides for a waiver of certain property rights that are normally automatically afforded a surviving spouse. When considering premarital (prenuptial) or postmarital (postnuptial) planning, estate and succession planning should be a very large part of the consideration. MCL 700.2205 states the following:
The rights of the surviving spouse to a share under intestate succession, homestead allowance, election, dower, exempt property, or family allowance may be waived, wholly or partially, before or after marriage, by a written contract, agreement, or waiver signed by the party waiving after fair disclosure. Unless it provides to the contrary, a waiver of "all rights" in the property or estate of a present or prospective spouse or a complete property settlement entered into after or in anticipation of separate maintenance is a waiver of all rights to homestead allowance, election, dower, exempt property, and family allowance by the spouse in the property of the other and is an irrevocable renunciation by the spouse of all benefits that would otherwise pass to the spouse from the other spouse by intestate succession or by virtue of a will executed before the waiver or property settlement.
By Matthew A. Quick A question that comes up frequently: If one spouse sets up a trust in his or her name only, and funds it with marital property does the other spouse have any right to the property in the trust upon death?
Upon death, the other spouse does not have an interest in the trust and there is nothing under the Estate and Protected Individuals Code (the law that controls this area) that gives him or her any rights under the trust. Not even elective rights may be made against the trust.