Abstract: There may be many reasons for an individual to establish a trust.

While most people think trusts are only for the wealthy, trusts are commonly used to distribute property after death or to protect one’s assets in the event of physical or mental disability. A trust is simply the legal relationship created when an owner of property (the grantor) transfers property to another person (the trustee) to hold for the benefit of a third party (the beneficiary).

Among the uses for a trust, is providing continuity in the management of a business or other property. Or a trust can name a guardian for minor children. A trustee can help manage assets and protect assets for beneficiaries who are unable to prudently handle their personal financial affairs.

The grantor usually has a specific goal in setting up the trust, such as to provide the beneficiary with continuing financial assistance or passing ownership or control of a specific property. This is generally the case where minors, or others deemed legally incompetent, are the intended recipients.

A living trust is a trust created when the grantor is alive as opposed to a testamentary trust created by a will, which takes effect at death. Under a living trust, a trustee may be empowered to handle business details and arrange financial matters for a living person who is unable to handle his or her own affairs.

For a large estate, avoiding the publicity of probate may be another consideration in setting up a trust. During probate of a will, all actions of the executor under court supervision become a matter of public record, open to anyone wishing to look up the proceedings. While the administrator of a trust has many of the same tasks as an executor, the transactions themselves remain private.

Many people set up a trust so that they can donate to charity on a tax-advantaged basis. A Charitable Remainder Trust, for example, enables a grantor to give appreciated property to a charitable organization without paying capital gains taxes on the appreciation.

The potential estate and gift tax savings made possible by the use of certain types of trusts may be another factor in setting up a trust. Even with the many changes in estate tax laws over the past few years, trusts can frequently be useful in minimizing the size of the grantor’s future estate, thereby reducing estate taxes due. A particularly attractive example of such a trust is an irrevocable trust funded by life insurance.

Trusts can serve many useful purposes. The law of trusts and estates is a complex area, however, and it is constantly changing. Before a trust is established, many legal and tax issues must be fully considered. You should consult with your legal and tax professionals to help ensure that the trust established provides the benefits intended by the grantor.

AXA Advisors, LLC does not provide legal or tax advice. Please consult your tax or legal advisor regarding your individual situation.

This article is provided by William Phillips.  William Phillips offers securities and investment advisory services through AXA Advisors, LLC (member FINRA, SIPC) 3141 Fairview Park Drive Falls Church VA 22042 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries.

Goal: It is not abatement, rather it is designed to contain, control, and clean up any lead based paint contamination.  A “do no harm” type of approach for renovations.

Effective Date: April 22, 2010

Triggers for this particular regulation:

1. Potential for disturbing lead based paint
2. Pre-1978 Housing
3. Child occupied facilities that will disturb lead based paint
   1. Children residing or visiting a minimum of 60 hours per month
   2. Renovations for compensation.
      1. Renovations
         1. i.      Potential for disturbing painted surfaces over 6 sq ft (interior)
         2. ii.      Potential for disturbing painted surfaces over 20 sq ft (exterior)
4. Compensation:
   1. i.      Receiving Rent
   2. ii.      Hiring or subbing someone/some company to do the work
   3. iii.      Receiving property management fees

Complying with the regulation:

1. Must hire a contractor certified at firm level and worker level to do this work
2. Separate and distinct from the MD state regulation for pre-1950 housing
3. Civil and criminal penalties for non-compliance of up to $33,500 each
4. Includes notification and documentation from residents prior to commencing work and filing paperwork for minimum of three years after the work was completed.
5. Containment – establish a sealed work area to control the escape of dust, prevent entry
6. Control – minimize dust by wet misting during the work
7. Cleaning up – get rid of material and specialized cleaning and testing protocol

Exemptions:

1. Minor repairs disturbing less than 6 sq ft (interior) or 20 sq ft (exterior)
2. Owners doing their own renovations
3. Studios or efficiencies
4. Common areas in multi-family dwellings (however must distribute notice to all residents)
5. If have a report certifying there is no lead based paint present in the building

More info:

www.epa.gov/lead/pubs/renovation.htm

In particular, look at the EPA’s  “Small Entity Compliance Guide”

The name of a “local” company that is certified to do the training is the Connor Institute in Baltimore.  Jackson Anderson was the guy who did the seminar I attended in Silver Spring last month.  www.connorinstitute.com

janderson@connorinstitute.com

Article Courtesy of NAIC

SAN FRANCISCO (June 4, 2007) — A large percentage of U.S. homeowners mistakenly believe that standard
homeowners insurance protects them from a wide array of perils, according to new research by the National Association of Insurance Commissioners (NAIC). In fact, typical property and liability policies don’t cover home damage from floods, earthquakes, water line breaks, termites, mold, and several other perils, large and small.

The survey found that 33 percent of U.S. heads of household, who own a home and have homeowners insurance,
incorrectly believe flood damages would be covered by a standard homeowners or property and liability policy, despite extensive media coverage on Hurricane Katrina victims whose claims were denied because they lacked flood insurance.

“Many homeowners learned the hard way that their insurance policies did not provide flood protection,” said Walter Bell, NAIC President and Alabama Insurance Commissioner. “As we enter the 2007 hurricane season, we strongly encourage consumers in flood–prone areas to check whether they are properly covered.”

According to the NAIC, flood insurance polices generally are available from the National Flood Insurance Program (NFIP) and are often sold by agents that sell homeowners policies.

“There are some limitations in flood insurance polices that differ from standard homeowners policies,” Bell said. “Excess flood insurance is often available from private insurers when people seek to insure high–value homes that exceed the limits offered by the NIFP.”

The NAIC survey also revealed other homeowner misunderstandings relating to common loss situations — none of which are covered by standard homeowners insurance policies — such as:

• 68 percent think vehicles such as cars, boats and motorcycles stolen from or damaged on their property are covered.

• 51 percent think damages from a break in the water line on their property supplying water to their home are covered.

• 37 percent think damages due to a break in the sewer line on their property that connects to their municipal sewer system are covered.

• 35 percent think damages from earthquakes are covered.

• 34 percent think damages from mold are covered.

• 31 percent think damages from termites or other infestation are covered.

• 22 percent think pets stolen from or injured on their property are covered.

“Many homeowners could be seriously harmed financially by misunderstandings about their insurance,” Bell said. “It’s critical that consumers look closely at their policies and ask their insurance agents detailed questions to become fully aware of what is, and what is not, covered.”

The NAIC survey revealed another type of potential consumer misunderstanding. Twenty–four percent of respondents indicated their policies insured their homes for the actual cash value, while 64 percent said their policies covered the replacement cost. Another 12 percent said they did not know which type of coverage — actual cash value or replacement cost — they purchased.

Actual cash value is the amount it would take to repair or replace damage to a home and its contents after depreciation. Replacement cost is the amount it would take to replace or rebuild a home or repair damages with materials of similar kind and quality, without deducting for depreciation.

“It’s important that consumers understand this distinction,” Bell said. “In the event of a covered loss, an actual cash value payout could be thousands of dollars lower than a benefit calculated at the replacement cost.”

The NAIC survey also uncovered a growing concern among homeowners about being sued. Twenty–eight percent of
respondents reported they were more concerned today than they were five years ago about being the target of a lawsuit.

“Consumers can better protect themselves from lawsuits by adding umbrella liability coverage to their homeowners
policy,” Bell said. According to the NAIC survey, a majority of homeowners — 63 percent — lack this umbrella coverage.

The NAIC provides extensive information, tips and considerations regarding homeowners insurance on its consumer education Web site, Insure U (www.InsureUonline.org). The entire site is also available in Spanish
(www.insureuonline.org/espanol).

Insurance Tips for Homeowners from the NAIC’s Insure U Web Site

• Add insurance coverage as you enhance the value of your home and acquire expensive possessions, such as furniture, computers, stereos and televisions.

• Alert your insurance company when making any major home improvements — usually anything more than $5,000.  Also, update your homeowners insurance policy to reflect the new enhancements and prevent being underinsured.

• In maintaining your residence, realize that you are liable for things that happen on your premises. Keep in mind that in many states you could be held legally responsible for the actions of anyone who drinks in your home and then has an accident in your house or after leaving it. Your policy should protect you against lawsuits due to these types of liability issues.

• Backyard items, such as a trampoline or pool, may require you to increase your liability coverage through an umbrella policy that protects you in the event that someone is injured while on your property.

• As you acquire more valuables — jewelry, family heirlooms, antiques, art — consider purchasing an additional “floater” or “rider” to your policy to cover these special items. They’re typically not covered by a basic homeowners or renters policy.

• It’s a good idea to make an inventory of all of your personal property, along with a photograph or video of each room. Also, save your receipts for major items and keep them in a safe place away from your house or apartment. That will make it easier if you need to file a claim.

“Consumers also should protect themselves from being scammed by fake insurance companies selling bogus insurance policies,” said Catherine J. Weatherford, NAIC Executive Vice President and CEO. “All they need to do before purchasing insurance is take a few minutes to stop, call their state insurance department, and confirm that a company is legitimate and authorized to sell insurance in their state.”

For more information about insurance, consumers can visit www.InsureUonline.org.

About the NAIC
Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary
organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and the five U.S. territories. The NAIC’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, the NAIC is the oldest association of state officials. For more than 135 years, statebased insurance supervision has served the needs of consumers, industry and the business of insurance at-large by ensuring hands-on, frontline protection for consumers, while providing insurers the uniform platforms and coordinated systems they need to compete effectively in an ever-changing marketplace. For more information, visit NAIC on the Web at: http://www.naic.org/press_home.htm.

In an opinion issued March 22, 2010, the Maryland Court of Appeals ruled that “a trier of fact could hold [a member of an LLC] personally liable for lead paint-related injuries suffered by children who occupied a dwelling that the LLC owned.”

Under the facts of this case, an LLC purchased the property at tax sale and planned on re-selling it “as is” instead of holding it as a rental property.   At the time of purchase, the Managing Member was unaware that the property was occupied by tenants of the prior owner.  Upon discovery of occupants, the LLC provided them with a 30-day notice to vacate.  The occupants failed to vacate the property and were finally forcibly removed from the property by court order several months later.  The LLC sold the property 1 year after it had acquired title.  Two years later, the occupants of the property filed a complaint against the LLC for elevated lead levels suffered by two minor children.

The Court found that, despite the fact that there was no formal tenancy established and that the occupants had no legal right to possess the dwelling, that the owner of the property had a duty under the Baltimore City Housing Code to keep the property “in good repair, in safe condition, and fit for human habitation”.

The Baltimore City Housing Code states that any “owner or operator of a property … shall be responsible for compliance with all of the provisions of the Code.  It defines “owner” as “any person, firm, corporation…who…owns, holds or controls” an interest in property.  Within this definition, the term “owner” includes “any vendee in possession of the property and any authorized agent of the owner”.  It defines “operator” as “any person who has charge, care or control of a building…”  The Court determined that the term “control” is defined as one who has “an ability to change or affect” title to the property.  Since the member of the subject LLC “was responsible for running the day-to-day affairs [of the LLC]” and had signed certain deeds and other documents on behalf of the LLC, the Court found that a “trier of fact” could find that he may have changed or affected title.  They further found that “a reasonable trier of fact could determine that Respondent personally committed, inspired or participated in the tort alleged in this case, even as a member of [the LLC] and if so, he may be held personally liable…”

This Court Opinion is based upon the very broad definitions contained in the Baltimore Housing Code, however, similar language is contained in the Maryland Lead Poisoning Prevention Act.  The point to remember here is that when purchasing property, it is important to determine the physical status of the property and whether or not the property is occupied.   In this case, no member of the LLC had ever visited the property, before or after the purchase.  The Court has ruled that whether or not occupants are legally in possession of the property, the Owner of the property owes a duty of care to those occupants.  Further, the Court has re-emphasized that simply acting on behalf of an LLC or corporation, does not eradicate a person’s liability for their own acts and failures to comply with law.

The temporary new policy will expand access to FHA mortgage insurance is meant to allow for the quick resale of foreclosed properties.

Effective February 1, 2010, FHA, while maintaining what the release describes as “very strict conditions and guidelines to assure that predatory practices are not allowed” will temporarily waive the 90-day owner seasoning period. 

Click here to read the complete article

First, we should define various types of “flipping”.

Flipping the Property: This is where a person purchases a property, puts no or minimal amount of work into it, and re-sells it for a profit within a very short period of time.

Flipping the Contract: Also known as a “contract assignment” or “wholesaling”,  this is where a Buyer under a contract to purchase property sells his/her right to purchase to another person.

Turning the Property: Also known  as “rehabbing the property” or “renovating the property”, this is where a person purchases a distressed property, invests a significant amount of time and money into rehabilitating the property and re-sells it at market value.

The threshold established for whether or not the transaction is legal is determined by the reasonableness of the original purchase price and the final sales price.  The foundation of the American economic system is the ability to “buy low and sell high”.  But where are the limits on this?  If you are taking advantage of someone else’s unfortunate circumstances to convince him to sell you the property for less than they could get otherwise, it is considered fraud.  If you convince an unsophisticated buyer to pay more for a property than you know it is worth, it is considered fraud.  When “flipping a contract”, it is considered fraud against the Seller if you contract to purchase the property at what you indicate as fair market value and then sell your rights under the contract to a third party for a significant profit, without the Seller’s knowledge.

A rule of thumb that can be used to determine the reasonableness of your transaction is to consider the following:  If someone files a lawsuit against me, can I justify to the judge (and will he accept the argument) that the amount I purchased the property for and the amount I sold it for were reasonable under the circumstances?

FannieMae

If you are purchasing REO properties from FannieMae, read your contract carefully.  Your resale of the property may be restricted for up to 180 days from the date of closing.  FannieMae is requiring the following language to be contained in both their contracts of sale and the Deeds of Conveyance.

“Grantee herein shall be prohibited from conveying captioned property to a bona fide
purchaser for value for a sales price of greater than ($_______= up to 120% of sales price) for
a period of [up to one hundred and eighty (180)] days from the date of this deed. Grantee shall
also be prohibited from encumbering subject property with a security interest in the
amount greater than ($_______= up to 120% of sales price) for a period of [up to one hundred and eighty (180)] days from the date of this deed. These restrictions shall run with the land
and are not personal to grantee.”

The purpose of this language is to prevent investors from “low-balling” the price they offer to FannieMae for the property and then re-selling the property at a much higher price, with simple cosmetic repairs.  They are concerned about being defrauded into selling the property for less than it is worth, buyers being defrauded into buying the property for more than it is worth and lenders being defrauded into loaning money on a property that does not support the value of the loan.  Unfortunately, this impairs the honest investor, who legitimately upgrades the property and its value, from being able to re-sell the property in less than 6 months.

FHA Anti-Flip Rule

FHA will not insure a loan where the property is being re-sold within 90 days of the Seller’s acquisition of the property.  The language in the Rule is somewhat ambiguous and some lenders are interpreting this to mean that the Contract of Sale cannot be signed within the 90 day period.  However, most lenders are interpreting this to mean that the closing on the FHA purchase cannot occur within the 90 day period.  If the re-sale occurs within 91-180 days of the Seller’s acquisition, the lender is required to document the re-sale value if the Seller is selling for at least 100% more than he/she paid for the property.  This documentation can be either an additional appraisal performed on the property or documentation of the Seller’s rehabilitation efforts on the property.  For properties re-sold within 91 days to 1 year, FHA may require the lender to provide additional documentation on value if HUD has determined that the property is located in an area where “flipping” is a problem.

Read About It

The law now REQUIRES condominium master policies to cover the reconstruction of the interior of the unit to the condition in which it was first delivered by the developer.  Previously, under a Maryland Court of Appeals ruling, associations and their master policy carriers were given the green light to refuse to do any work inside a unit. Often, owners purchased coverage for replacement of carpet, interior partitions, bathrooms and kitchens because the master policy did not cover those items. Now it must.

Owners are also now clearly liable for damage to common elements and to other units when the damage originates from their unit.  Previously, it was necessary to prove negligence–no longer the case.  If the fire starts in your unit or the water comes from your unit, you must pay.  The liability is limited to the lesser of the master policy deductible or $5,000.  Your condominium unit owner’s policy can cover your liability under the master policy deductible.

Remember, the master policy repairs need only restore the unit to the condition delivered by the developer.  If you have added hardwood floors or upgraded your kitchen, you need to talk to your agent about including “betterments and improvements” coverage to help restore these upgrades should a disaster occur.

Don’t delay.  This law change is already in effect.  You may have duplicate coverage. You may not have coverage for the deductible or upgrades. Disaster will not wait until you have time to make the appropriate changes to your policy. This change is to the Condominium Act and has no impact on units in homeowners associations.