By John Hay
Recently, an article by MarketWatch highlighted the importance of having a Will: “Why you need to write a Will now, even if you’re not ‘rich’”
In my view, the article is spot on for several reasons, including the following.
A properly executed Will:
- Makes life easier on your family after your death;
- Gives you, and not the State or a Court, control over your assets;
- By appointing a Guardian, formally gives you a say in who takes care of your minor children;
- Helps avoiding the confusion on who actually gets what (is your Ex still on your Life Insurance Policy?);
- Specifies trusts that can protect heirs from themselves!
However, the article does come up short, specifically in some of the following important estate planning nuggets. A properly drafted, executed and witnessed Will:
- Is able to transfer Home Ownership with minimal additional work often required by a Title Company to sell the real estate;
- Creates a catchall to obtain funds or accounts you might have overlooked or not had at the time of the execution of the Will. When was the last time you checked out the unclaimed property website?
- Specifies how you want your remains and final wishes handled. While being propped up beside the jukebox might not be enforceable, the amount of strife between surviving siblings/spouses/parents about who “really knew what you wanted” for your burial is as endemic as clashes about money.
Lastly, a properly drafted, executed and witnessed Will package also includes estate planning documents as well-designations of guardians, power of attorneys, medical power of attorneys, and medical directives, among other documents. Translated into regular English, if you were to have a medical emergency, is someone designated to make critical medical decisions for you?
By John Hay
There is actually an ad-valorem tax benefit that awaits you when you turn 65. In addition to the General Residential Homestead Exemption available to most residential homeowners on primary residence properties, homeowners of at least age 65 may be entitled to an additional tax exemption commonly called the “Over 65 Exemption”.
To obtain such an exemption, the homeowner must apply for an application with the Central Appraisal District (CAD) of the county where the property is located. As a part of the Application for Residence Homestead Exemption, Form 50-114, the Over 65 designation carries similar requirements to prove qualification and also requires the signature to be notarized in many counties.
The application must be fully completed (even if you already have a Homestead Exemption on file). Some counties even have online filing options for easy use.
The application is a one-time cost-free filing and may be submitted on January 1 or later in the year where the owner turns age 65. When approved by the county, the Over 65 exemption results in a tax ceiling for certain ad valorem assessed taxes…and in many jurisdictions this includes the school district taxes which typically make up the largest portion of property taxes.
However, if you remodel, add square footage or a garage or complete other significant improvement, the ceilings may rise. It is also possible (and fairly easy) to transfer your Over 65 tax ceiling to a new property by filing a Request to Cancel/Port Exemptions form.
If you have any questions about residential property tax exemptions, including a possible extension of the Over 65 Exemption for the surviving spouse who is over 55 years of age when the older spouse passes away, please do not hesitate to call our office.
By Patton VanVeckhoven
Parties to a real estate transaction are often surprised to discover, via a survey or title commitment, that a fence or other structure actually crosses a property boundary line, creating the potential for a question of ownership.
Title companies generally will not insure title to strips of land between boundary lines and fences, causing potential for barriers to closing. The title commitment will take exception to coverage in Schedule B with an exception similar to the following:
“Any claim, right, or assertion of title by the adjoining land owner in and to that strip of land located between the property line and the fence, as shown on survey dated 2/6/2017…”
One reason title companies make this exception is that the neighbor’s use of the property may have developed into a claim for adverse possession, or into a prescriptive easement, among other reasons. Title companies will generally remove the exception if furnished with a boundary line agreement between the owners of the two properties, in which both parties agree that the boundary line is the line shown on the survey and not the fence line.
Further, the owner who has the structure encroaching on the property will also be required to waive any interest he may have in the strip of land at issue.
As a buyer, it is important to engage an attorney to thoroughly review both your title commitment and survey, as well as any HOA documents that may exist. Once you buy the property, any question or dispute is now your problem and could lead to costly litigation.
In most cases, both parties will not mind signing the boundary line agreement, because neither party likely realizes the error and neither party wants to go through the trouble, burden and expense of making such a claim.
In the event the seller and corresponding neighbor refuse or are unable to enter into a boundary line agreement, the buyer will likely have the option under the purchase contract to terminate the contract.
Because it may take some time to have the boundary line agreement agreed upon and executed by the neighbor, a real estate attorney should be engaged to prepare the agreement as soon as the boundary line issue is detected, as well as review the rest of the title, survey and HOA documents.
Managing Partner, John A. Hay III, is one of the nominees for Austin Business Journal’s Best CEO Awards program. Winners in each category will be named at the invitation-only ceremony on Thursday, September 22.
“Running a company, no matter the size, requires a delicate balance of accountability and compassion,” said Will Anderson, ABJ Digital Editor. Mr. Hay is nominated in the category of companies under $10,000,000 in revenue.
“I am honored and humbled to be nominated among this distinguished list of local CEO’s,” John Hay said. “The outstanding team of professionals at The Hay Legal Group PLLC all contribute to our success everyday.”
By Colin Newberry, Attorney at Law
This question is one we see often, as sometimes well-intentioned actions can lead to unintentional consequences. Oftentimes a couple will buy a house together without being married. OR, a homeowner will add a boyfriend, girlfriend, partner, or fiancé to a property title.
Unfortunately, once a person is added to the title of a house, it is no longer just your house. You share ownership with that person, and it is, to use Texas legal jargon, Y’alls House. Even if you are the only one responsible the mortgage on the home, this can lead to trouble down the road, if you did not prepare properly from the get go.
Mind you, this isn’t just for people who were in a relationship. I’ve handled partition suits for siblings who inherited property together via probate, investors who are divesting themselves of property or the business relationship, or in one rare case, between a mother and her child who inherited an interest in a property from the child’s deceased father.
What are the things to keep in mind when approaching the division of a jointly owned, and jointly mortgaged, property? A few things to consider:
- -Is it divisible in kind [physical division] or by sale only?
- -Does someone want to stay in the property, or otherwise keep it? Of course, if one person is staying and one person is going, that opens up a whole other bucket of questions.
REMOVAL FROM THE MORTGAGE AND EQUITY REIMBURSEMENT – The two biggest obstacles to partitioning a property
Release from Mortgage: The bank doesn’t care that you don’t own the property anymore; they care that they have two guarantors to go after if the loan falls into default. This is true regardless of whether you are married. Even in an amicable partition, the refinancing or releasing of a party from a mortgage is the most difficult step.
Understandably, anyone who is giving up their interest in a property doesn’t want to have that loan on their credit report, much less be liable for the other owner’s failure to pay the mortgage. When a mortgage cannot be removed as to one property owner – whether because of financial constraints or bank requirements – all that is left for the cautious owner to do is to insist on the sale of the property to satisfy that loan.
Reimbursements of equity: Whether agreed to be sold or forced through a partition sale, the allotment of profits, should there be any, is the most contentious part of any partition. So, who gets money for what? The answer is complicated, but there are certain areas of reimbursement that ring true across all issues:
- -Down Payment: Was the property co-owned at purchase, or was a second owner added to Title after purchase?
- -Mortgage: This obligation is for both owners, regardless of who is on the note. If one owner doesn’t pay, they should owe from the proceeds of the sale.
- -Necessary repairs: If one owner has to make a repair to maintain the condition of the property, then should they get reimbursed for that repair or split the cost?
- -Improvements: Should one owner agree to another owner about improving the property, then it is possible to have the expense of that improvement reimbursed.
With any situation, however, the cost of determining value, reimbursements, and ownership can quickly surpass the value in the home. It is almost universally better to set aside the emotions of whatever relationship existed when the property was purchased, and divide up the property under the relationship as it stands now with a dry, business approach.
THE BEST EXIT STRATEGY HAPPENS AT THE INCEPTION OF THE JOINT INVESTMENT
An even better exit strategy is to have a plan at the inception of the purchase. Called a co-habitation agreement, purchase-sale strategy, or even an Agreement in the Company Agreement should the property be bought by an entity, this document serves as a Pre-Nup for Property Ownership. It states who stays and who goes, how notice is given, how reimbursements are determined, and sets timelines for refinancing or if necessary, pricing, realtors, and timetables for listing and selling the property. This contractual arrangement may seem like an uncomfortable conversation at the time, but is a necessary evil for anyone going into a significant investment with a partner you are not married to.
Back to the Question: How to dissolve this joint ownership? The worst case answer is a Suit for Partition with a judicial determination of reimbursements and equity. The best case scenario is a practical business conversation regarding your investment. The preferred scenario is to have that conversation while things are still in the beginning, optimistic stages of ownership in the form of a co-habitation agreement previously discussed.
No matter what route you take, or are being taken on, one fact remains true. This area of law is complicated and merits the investment of an experienced attorney to guide you through your options to ensure you get the best possible result.
John A. Hay III, Managing Partner
Property values in Central Texas and all across the State continue to rise, so what does this mean for your ad valorem taxes, commonly referred to as property taxes? It means that the appraised value, by which the County derives your tax bill at the end of the year, is likely higher than it was in 2015.
How is this calculated? What can I do about the valuation? Below is a brief summary of the process related to Travis County, which is the same throughout Texas counties.
First, how is the value of your property determined?
The county’s appraisal district calculates the value. In Travis County, the Travis Central Appraisal District (“TCAD”) website is where you can search for values and other information for properties, as well as gather forms and related information from TCAD. Their website is informative and easy to navigate, but be aware many counties are behind the curve.
The appraisal district is charged with valuing property and generally their information comes from a few places. In Travis County:
- -TCAD monitors recorded documents as they are posted with the Travis County Clerk. These include your deed and deed of trust among other things. It is important to not place the sales price in a deed, which sometimes is done in a cash situation.
- -Then TCAD uses its own eyes, through monitoring of building permits and improvements, to set values based on its own observations.
Note: When you buy a property, TCAD will send you an information statement asking you to disclose what you paid for the property. YOU ARE NOT REQUIRED TO COMPLETE THIS FORM and I suggest that you rarely do, as it provides unnecessary information that may be used to your disadvantage down the road.
With all that being said, the values are set by applying blanket factors or codes relating to the property such as lot and structure size, neighborhood, condition, proximity to freeways, and green space – just to name a few, stirring them in a big pot, and out comes your value.
As improvements are made or codes for the neighborhood are changed, so does the method by which your appraised value is calculated. Thus, sometimes you may see a large jump or decrease in your value that on the face may not look to be commensurate with your perception of the value.
Second, how do I fight or correctly termed, PROTEST, the value placed on my home by the appraisal district?
Time is of the essence as most protests need to be filed by May 31st or no later than 30 days after the appraisal district mailed you a notice of appraised value, whichever is later. The filing of the protest is fairly simple.
First, complete the Protest Form and be sure to indicate your correct appraisal district on the top of page one. With this protest you only have to complete the minimum information, as rarely does the County simply change your value based solely off the information completed here without at least an informal hearing.
Once you complete the protest form, next gather all your data and information to present your case. You will be notified of the date for both an informal and formal hearing date.
The informal hearing is just as it sounds – you sit down with a representative of the appraisal district and discuss your value and upon agreement, settle on an agreed value. You are not required to go to or notify the county if you will/will not attend the informal hearing.
The next phase – if you do not settle or attend the informal hearing – is the formal hearing.
- -Here, a panel of three people who serve on the appraisal review board acts as the “judges” to conduct the proceedings, listen and to and weigh your evidence, the evidence and rebuttal of TCAD’s appraiser, their own observations, personal knowledge and other factors to decide on a value, including deciding not to change your value.
- -This value is made up of the value of the land and improvements, both of which combine to be your appraised value.
- -Generally, the county is hesitant to make changes in the land value, so you likely will see a change in the improvements.
Should I hire a professional to handle my affairs as related to a property tax protest?
As different firms operate in different ways, ultimately you need to decide if you think that a professional can get the same or better results, without you spending the hours it takes to complete the protest process.
Some firms provide their services at a flat fee value while others charge a % of your savings. You should weigh your goals and the experience and approach of each organization to decide what is best for you.
Important – each property and matter is different and there is no way to predict results. Should you hire someone to handle your property tax protest, you would complete the Appointment of Agent form and indicate your appraisal district on the top of the form.
For the third year in a row, John A. Hay III, Founder and Managing Partner of The Hay Legal Group PLLC, has been selected to the 2016 Texas Super Lawyers Rising Star list.
Each year, no more than 2.5 percent of the lawyers in the state are selected by the research team at Super Lawyers to receive this honor.
The selection process for the Rising Stars list is the same as the Super Lawyers selection process, with one exception: to be eligible for inclusion in Rising Stars, a candidate must be either 40 years old or younger or in practice for 10 years or less.
All attorneys first go through the Super Lawyers selection process. Those who are not selected to the Super Lawyers list, but who meet either one of the Rising Stars eligibility requirements, then go through the Rising Stars selection process. While up to five percent of the lawyers in the state are named to Super Lawyers, no more than 2.5 percent are named to the Rising Stars list.
Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys.
by Patton VanVeckhoven
As Austin’s population continues to explode, many developers seeking to maximize lot space have leveled-single family homes and replaced them with two-unit condominium buildings. Additionally, many owners of multi-family buildings, such as apartment complexes and duplexes, are converting the buildings into condominiums, to allow for units to be sold separately and capitalize on the current seller’s market.
The process of establishing a condominium regime for new construction is similar to the process of converting an existing building into condominiums. The Texas Uniform Condominium Act (“TUCA”) governs Texas condominium regimes, and the following documents must be in strict compliance with TUCA.
There are three sets of documents involved for each process:
-documents related to the condominium owners’ association;
-documents related to the Condominium Declaration, including a condominium survey
-documents related to conveyance.
A key distinction with conversions is that conveyances of the newly created condominium units are made subject to existing leases. A key distinction with new construction is that a transfer of the Owners’ Association management is likely to take place at, or soon after, closing, whereas conversions often involve the building owner maintaining control of management until a certain percentage of condominium units are conveyed.
Because of the strict requirements of TUCA, owners and investors seeking to create condominium regimes should consult with a real estate attorney and surveyor experienced with condominiums. Additionally, a commercial insurance agent will need to be involved in the process.
The Hay Legal Group PLLC prepares condominium documents on a flat fee basis, which includes filing fees with the Texas Secretary of State and the county clerk’s office. For more information on our firm and how you can engage us to represent you in your real property matters, please contact Susie Hall at 512.467.6060.
Texas Association of Realtors® Now Offers Form TAR 2516
By now REALTORS® know TRID (TILA-RESPA Integrated Disclosure) changed the world for residential real estate transactions dramatically. The Texas Association of Realtors® recently implemented a uniform document called “Authorization To Furnish TILA-RESPA Integrated Disclosures” – TAR-2516 – specifically to allow consumers to authorize their REALTORS® to receive the Closing Disclosure (or CD).
By providing written permission authorizing the title company and lender to share the CD with the REALTORS® on a particular transaction, this TAR Form 2516 will loop agents in early to address any potential errors, as well as help explain questions of the borrower.
Previous to the implementation of the CD, the HUD-1 Settlement Statement would be made available to the REALTORS® allowing them to be involved in these same proactive tasks. However, the changes made by the Consumer Financial Protection Bureau (CFPB) in October prohibit allowing dissemination of the CD without specific written consent of the borrower.
TAR-2516 allows for this specific written consent and REALTORS® should discuss with their clients whether they will allow the REALTOR® to be involved in the CD. If so, this form should be considered a must.
If the borrower chooses to involve the REALTOR®, the parties should get this form executed early in the process and – immediately upon execution – provide it to the title company, escrow officer and lender, which allows for any processing needed to add the REALTOR® to the distribution group(s).
Click here for a link to the TAR-2516 can be found in ZipForm or on the Texas Land Title Association website.
By Patton VanVeckhoven
The 1031 Exchange derives its name from Internal Revenue Section 1031, which allows sellers to defer taxes on gains of the sale of property by reinvesting into like-kind properties.
Currently, high-income investors are subject to a 20% long-term capital gains tax, and an additional 3.8% net investment income tax to finance the Affordable Care Act. So an investor that purchased property in 2009 for $400K, and sold it today for $700K, could be liable for taxes of more than $70K on the $300K gain. This is where the 1031 Exchange comes to the rescue.
The basic requirements for a 1031 exchange are:
- The property must be held for business or investment use: Rental properties, raw land, and net leased properties all qualify, but fix & flips, primary residences, inventory, stocks and bonds do not. There is no established hold time, but if the exchange is ever audited, the IRS will look to whether the intent of the exchanger was to hold the property for investment purposes, as opposed to flipping it, so the longer the hold time, the better the chance the exchange will be allowed.
- The replacement property must be of a like-kind: Real property may be exchanged for other types of real property, e.g., residential rental property may be exchanged for farmland or an office building, but not for personal property. Tangible personal property, such as a fleet of trucks, may be exchanged for other tangible personal property, such as an airplane.
- The replacement property must be identified within 45 days of closing the relinquished property: The identification must have a specific description and be in writing. Multiple properties may be identified, as long as their aggregate fair market value does not exceed 200% of the sales price of the relinquished property. However, the property purchased must be 95% of the value of the properties identified.
- The replacement property must be of equal or higher value: Any gain will be taxed. The difference in value, known as “boot,” can consist of cash or a reduction in your mortgage, so if you don’t receive equity or cash, but your mortgage liability is reduced, the reduction will be taxed as “boot.”
- The exchange must be completed within 180 days: The replacement property must be closed on within 180 days of the closing of the relinquished property.
- Qualified intermediaries: The IRS provides that the exchanger must use a qualified intermediary (“QI)”, also known as an exchange accommodator, to hold onto the proceeds. If a disqualified party takes possession of title or the proceeds, the exchange will be disallowed.
Prior to selling an investment or business property, you should consult with your tax adviser as to whether a 1031 exchange makes sense. You may be eligible for offsets that leave you with a negligible capital gain. In addition to consulting your tax advisor, you should consult a real estate attorney regarding the conveyances involved with the exchange; our attorneys at The Hay Legal Group PLLC can help.
In summary, the 1031 exchange is a fantastic tax saving tool available to parties looking to convey business or investment property, and the proper professionals should be contacted to ensure that the above rules are strictly complied with.
Remember, it’s not what you make on the sale, it’s what you keep!