Tough time selling your home? This may help!
Two clients in recent weeks have discussed selling their homes using short-term seller financing. Essentially, this means they sell their homes for the negotiated purchase price, but, rather than receiving the entire purchase price up front, they take back a short term (one or two year) mortgage on the property with a balloon payment at the end of the term. During the one or two year term before the balloon payment is due, the seller receives interest payments from the buyer.
This approach can help if you are having a difficult time finding a buyer for your home or if you want to sell your home to a particular person (a friend, perhaps), but this person is facing delays in getting approved for a mortgage.
For example, Seller wants to sell his $150,000 home to Buyer. Buyer agrees to the purchase price and they sign the paperwork. At closing, Seller transfers title (ownership) of the property to Buyer and Buyer signs a promissory note and mortgage agreeing to pay Seller the $150,000 plus interest. After closing, Buyer makes monthly interest payments to Seller (income to Seller) for two years, at the end of which period Buyer pays Seller the $150,000 purchase price. The two-year period gives Buyer time to secure a mortgage from a bank or obtain other means to cover the purchase price.
You may ask, what if Buyer fails to make the interest payments or cannot get a mortgage? Seller could then negotiate new terms or choose to foreclose on the property like any other mortgage holder. Yes, foreclosure is a pain and Seller would prefer to avoid it (so Seller will need to investigate Buyer and have a degree of confidence in Buyer's ability to pay); but, at least Seller has a remedy.
Other benefits from this arrangement: Seller has additional income (from the interest payments), Buyer owns the property and can get homestead property tax benefits and creditor protection, Seller no longer has to maintain the property or deal with any association issues, the transaction closes more quickly, etc.
There are obviously details to address to make this approach work, such as tax issues, homestead considerations, title issues, etc. Nonetheless, this approach could enable a Buyer to get into a property, and a Seller to get out from under a property, that otherwise might not have happened.
Thursday, September 23, 2010
Monday, September 13, 2010
Single-Member LLCs
A recent Florida Supreme Court decision may affect you.
Single-member LLCs (SMLLCs) have been a popular business structure for many years. A SMLLC is simply a limited liability company with only one owner (member). They are flexible, relatively easy to operate and (until recently) provided a layer of creditor protection that even corporations did not offer.
In simple terms, if you were personally sued (for a traffic accident or some other personal matter) then, under the former law, your SMLLC assets were protected from your personal creditor. Rather than being able to foreclose on your SMLLC assets, the creditor's sole remedy was to receive any dividends that you otherwise would have received from the SMLLC. (There are tax and other interesting issues that arose in this context, but they are too detailed for this discussion.)
This June, the Florida Supreme Court considered the various creditor issues surrounding SMLLCs and determined that the creditor of an SMLLC owner may be able to foreclose on the SMLLC. This means that the creditor would be able to take all of the assets of the business (subject to exceptions such as secured obligations).
The bottom line now? If you are the sole owner of a Florida LLC, you may wish to take extra precautions to defend against the possible loss of your business to pay a personal creditor of yours. Note that there is more than one approach to respond to this ruling. Further, this is a tricky legal area because of the laws relating to creditor rights. For these reasons, you would be well served to contact a lawyer to assist you in these matters.
Single-member LLCs (SMLLCs) have been a popular business structure for many years. A SMLLC is simply a limited liability company with only one owner (member). They are flexible, relatively easy to operate and (until recently) provided a layer of creditor protection that even corporations did not offer.
In simple terms, if you were personally sued (for a traffic accident or some other personal matter) then, under the former law, your SMLLC assets were protected from your personal creditor. Rather than being able to foreclose on your SMLLC assets, the creditor's sole remedy was to receive any dividends that you otherwise would have received from the SMLLC. (There are tax and other interesting issues that arose in this context, but they are too detailed for this discussion.)
This June, the Florida Supreme Court considered the various creditor issues surrounding SMLLCs and determined that the creditor of an SMLLC owner may be able to foreclose on the SMLLC. This means that the creditor would be able to take all of the assets of the business (subject to exceptions such as secured obligations).
The bottom line now? If you are the sole owner of a Florida LLC, you may wish to take extra precautions to defend against the possible loss of your business to pay a personal creditor of yours. Note that there is more than one approach to respond to this ruling. Further, this is a tricky legal area because of the laws relating to creditor rights. For these reasons, you would be well served to contact a lawyer to assist you in these matters.
Tuesday, September 7, 2010
Estate Tax Planning - The Time Has Arrived!
It's September 2010 and Congress has not acted; now is the time to consider 2011.
This blog has previously considered the uncertainty surrounding the federal estate tax laws. The bottom line is that there has been no federal estate tax (death tax) imposed during 2010. In 2011, however, this tax will return at a 55% tax rate (or even more for larger estates) on all assets valued in excess of $1 million.
$1 million sounds like a lot to some people. By the time you start adding everything that is included, however, many folks are surprised to find themselves 'rich' by IRS standards. Add up the value of your home, your IRA and 401k account balances, other bank accounts, personal property and (this is the kicker) the death benefit of your life insurance policies, and you may find that you too are rich!
For this reason, it is important now to take steps to plan for 2011. Throughout this year, there has been the possibility that Congress and the President would agree on changes to the tax laws to reduce the number of people hit by the federal estate tax. With the year winding down, it appears that such changes may not happen.
Nonetheless, you should be aware that there are ways to legally arrange your affairs to save a great deal of money on taxes. For example, if Mr. and Mrs. Smith were to die on January 1, 2011 owning a $400,000 home, $300,000 in their IRA and $500,000 in life insurance, their heirs would be required to write a check to the IRS for $110,000! (Note that the Smiths may not have viewed themselves as particularly wealthy, as most of their taxable estate was illiquid.) With simple planning, it is possible for the Smiths to avoid any estate taxes at all.
To repeat, we have enjoyed during 2010 a time in which estate tax issues were off of the table. That time is drawing to a close. Now is the time to plan for 2011.
This blog has previously considered the uncertainty surrounding the federal estate tax laws. The bottom line is that there has been no federal estate tax (death tax) imposed during 2010. In 2011, however, this tax will return at a 55% tax rate (or even more for larger estates) on all assets valued in excess of $1 million.
$1 million sounds like a lot to some people. By the time you start adding everything that is included, however, many folks are surprised to find themselves 'rich' by IRS standards. Add up the value of your home, your IRA and 401k account balances, other bank accounts, personal property and (this is the kicker) the death benefit of your life insurance policies, and you may find that you too are rich!
For this reason, it is important now to take steps to plan for 2011. Throughout this year, there has been the possibility that Congress and the President would agree on changes to the tax laws to reduce the number of people hit by the federal estate tax. With the year winding down, it appears that such changes may not happen.
Nonetheless, you should be aware that there are ways to legally arrange your affairs to save a great deal of money on taxes. For example, if Mr. and Mrs. Smith were to die on January 1, 2011 owning a $400,000 home, $300,000 in their IRA and $500,000 in life insurance, their heirs would be required to write a check to the IRS for $110,000! (Note that the Smiths may not have viewed themselves as particularly wealthy, as most of their taxable estate was illiquid.) With simple planning, it is possible for the Smiths to avoid any estate taxes at all.
To repeat, we have enjoyed during 2010 a time in which estate tax issues were off of the table. That time is drawing to a close. Now is the time to plan for 2011.
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