Newsletter - Winter 2012

This newsletter is designed to keep you up-to-date with changes in the law. For help with these or any other legal issues, please call today. The information in this newsletter is intended solely for your information. It does not constitute legal advice, and it should not be relied on without a discussion of your specific situation with an attorney.

 

Since the crash, however, many people are crunching the numbers and concluding that they’re better off renting. But are they really?

Everyone’s situation is different, but when many people do the math, they don’t consider the many legal and tax advantages of home ownership. For example:

• Home mortgage interest is deductible on your federal income tax return on loan amounts up to $1 million. This alone could save you thousands of dollars a year in taxes.

• You can generally deduct property taxes as well.

• Owning a home typically increases your credit score, which can save you a lot of money whenever you apply for credit. (You may have noticed that one of the most common questions on credit applications is, “Do you own or rent your home?”)

• You can borrow with a home equity loan, usually at very advantageous rates. And you can generally deduct the interest you pay on such a loan on your federal taxes.

Owning a home can help you save on income, capital gains and estate taxes – as well as improve your credit, lower your interest rates and protect your assets from creditors.

• When you sell your home, you get to keep the amount of any appreciation without having to pay capital gains tax – up to $250,000 for singles and $500,000 for married couples. If you rent instead and invest the amount you save, you’ll probably have to pay tax on your gains.

• If you have a fixed-rate mortgage, you’ll never have to worry about surprise rent increases. A fixed-rate mortgage is also a great hedge against inflation, because as inflation rises, the “real” amount you owe each month diminishes.

• If you work from home, you might be able to take a deduction on your taxes for the expenses of maintaining a home office. (You can do this even if you rent, but you can typically deduct more types of expenses if you own your home, such as insurance, repairs and depreciation.)

• Moving expenses may be deductible if you move for work, or if you’re self-employed. (Renters can also deduct moving expenses, but they can’t deduct the amount they forfeit if they have to break a lease.)

• In many states, if you run into financial trouble, there are “homestead” laws that allow you to keep all or part of the value of your home away from creditors. And if you own a home with a spouse as tenants by the entireties, then even if one of you incurs a large debt or gets hit with a lawsuit, you can’t be forced to sell the home.

• If you have medical problems, you may be able to make improvements to your home to accommodate your condition and then deduct them on your taxes as a medical expense.

• If you own a home and want to give it to your children, you may be able to save a lot of estate taxes by putting the home into something called a “qualified personal residence trust.”

Of course, there are other intangible advantages to home ownership, such as the fact that you’ll never have to worry about having to move if your lease isn’t renewed, and you’ll never have to get a landlord’s approval if you want to repaint or redecorate.

But the financial and tax advantages are very significant, too – often much more so than most people realize.

 

wedding-2Recently, a number of companies have been trying to persuade people that they can save money by handling their divorce on their own. These companies sell packets of generic forms in books or on the Internet, claiming that they were developed by “expert” attorneys and that they’re all you need.

Buyer beware! While these forms might be accepted by a divorce court, they’re not tailored to your specific situation, and the companies do not provide legal advice to protect you.

If you know someone who’s thinking of a “do-it-yourself” divorce, ask them these questions:

• Do you know if you’re entitled to a share of your spouse’s pension, IRA, 401(k) plan, or stock options? Do you understand the highly technical requirements you must comply with to obtain these benefits? (A “divorce kit” generally won’t help you with this.)

• If you’re splitting up property, are you aware of all the tax consequences? Many people have been surprised after a divorce with a large and unnecessary capital gains or other tax bill. (A divorce kit won’t give you tax advice, either.)

• How can you be sure that your spouse doesn’t have assets that he or she isn’t telling you about?

• If your spouse promises to pay you money, and doesn’t follow through – or files for bankruptcy – how will you be protected?

• Do you know how to re-title property in separate names in a way that provides legal safeguards? Do you know every type of beneficiary designation that need to be changed?

• Do you know what changes need to be made to your estate plan after the divorce, and how the divorce will affect Social Security, Medicare, Medicaid, health insurance, and other benefits?

• If you have children, will they be fully protected if your circumstances change in the future, or if your spouse’s circumstances change? What if they incur large expenses in the future, such as for medical problems or college tuition? What if your ex dies unexpectedly – have you mandated life insurance?

The truth is that the legal and financial implications of even the most simple, uncontested divorce can be profound, and the legal consequences of doing a divorce on the cheap with an online kit can be very costly indeed.

Federal wage-and-hour lawsuits against employers are at an all-time high. In fact, the number of employee lawsuits has quadrupled in the last 10 years, according to government figures.

A big reason for this is a sharp jump in claims that a company improperly treated an employee as an independent contractor.

Of course, more and more businesses these days want to treat their workers as “contractors,” because they can avoid overtime rules, payroll taxes, employee benefits and medical leave requirements.

Surprisingly, there’s no single, clear test to distinguish an employee from a contractor. In general, though, a worker might legally be an “employee” is he or she has worked steadily for the business for a long time, doesn’t perform work for any other employer, performs “core” functions of the business as opposed to ones that are typically outsourced, or does essentially the same work as other people who are treated as employees.

Misclassification can be an even bigger issue if a worker is injured on the job.

For example, a teenage worker on a horse farm in Maryland recently suffered severe hand injuries when a horse kicked her. The teenager had been classified as a contractor, and earned $8 an hour for cleaning stalls and training and feeding horses.

After the injury, she wasn’t able to collect workers’ compensation because she wasn’t an employee. So she sued the farm for “fraud” stemming from the misclassification, as well as for not providing a safe workplace.

A jury found that she should have been treated as an employee, and awarded her $275,000. That’s a lot more than it would have cost the company to treat her as an employee and pay for workers’ comp insurance.

Product-maker-sued-although

Generally, in order to hold someone liable in court for an injury, you have to show that they were careless or irresponsible in some way. If somebody ran a red light and hit you, that might not be hard to prove. But if a complex piece of machinery fails, it might be difficult to say exactly what went wrong, or what should have been done differently.

Fortunately, the court system recognizes this problem, and has made it easier for injured people to be compensated in many cases.

For instance, a man in Maine suffered severe abdominal pain after eating a hot turkey sandwich at a truck stop. Doctors discovered a small perforation of his esophagus, and evidence that it was caused by a turkey bone. The man sued the manufacturer of the turkey product in the sandwich, which was supposed to be “boneless.”

The manufacturer argued that it did everything it could to remove the bones, that it wasn’t careless or irresponsible, and that the man couldn’t point to anything specific that the company did wrong.

But the Maine Supreme Court sided with the man. It said that the question wasn’t what specific thing the company did wrong, but whether the product lived up to the reasonable expectations that consumers would have for it.

According to the court, if a consumer wouldn’t reasonably expect a “boneless” turkey product to contain a bone fragment large and sharp enough to perforate a person’s esophagus, then the company could be liable.

The law varies from state to state and case to case, but there are many instances where the courts have decided that the real issue isn’t what exact thing a manufacturer did wrong, but simply whether a product is safe enough to be sold to consumers – regardless of how careful the manufacturing process was.

 

Happy-famly-at-homeThe truth is, even a couple like Ken and Judy can benefit from a good estate plan, and it doesn’t have to cost them an arm and a leg.

Leaving aside the many serious errors that are commonly found in “form” wills in books and on the Internet, Ken and Judy should consider setting up a living trust.

No one wants to think about it, but suppose something happened to both of them – they died in an accident with a drunk driver, for instance. Chances are, they named each other as the beneficiaries of their life insurance, with their child as the secondary beneficiary. If they both were to die, the insurance company won’t pay their minor child directly. Someone will have to go to court and set up a guardianship over the property.

If Ken and Judy didn’t plan properly, the court might end up appointing a stranger as a guardian to oversee the child’s insurance funds. Every time the child needs money, such as for medical care or schooling, the guardian will have to make a decision about it, and probably petition the court to release the funds – incurring many costs and delays.

Even worse, once the child becomes a legal adult – which might happen when he or she turns 18 – the guardianship will end and the child will have full access to all the money. And very few 18-year-olds are mature enough to wisely handle a financial windfall.

With a trust, Ken and Judy can put someone they know in charge of the assets. That person can use the money for the child’s benefit without endless court costs and attorney fees. Plus, the money can stay in the trust after the child turns 18, and can be used as Ken and Judy direct – for education, a wedding, etc., or given to the child in increments as he or she gets older.

In addition, if Ken and Judy establish a living trust, it can be used later as a vehicle for more complicated estate planning once they acquire significant assets.

Beyond a living trust, Ken and Judy should each have a power of attorney document and a health care proxy. If something were to happen such that one of them became incapacitated – even temporarily – having these documents in place could make life for the other spouse a lot easier. (And while you can find generic documents like these on the Internet, they’re often riddled with errors and don’t take into account the specific needs of you and your family.)

Generic wills also don’t take into account the kinds of assets that don’t go through probate – such as IRAs, 401(k)s, brokerage accounts, and jointly-owned property. A good estate plan should coordinate these assets with a will and/or a trust.

The bottom line is that everyone should have a proper, professionally prepared estate plan. For young people, the process is usually inexpensive and painless, but the benefits can be profound.