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A. Reverse Mortgage – Beware!

B. Construction Contracts-Change Orders:

C. Revise Your Will?

D. Other Reasons to Update your Estate Planning Documents


 A. Reverse Mortgage – Beware!

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Stay in your home and receive monthly income, what could be better!

If you are making your financial and estate planning decisions based on late night television ads, you are a fool. A lot of money is spent trying to convince people that reverse mortgages are a wonderful idea because companies that sell them make huge fees but the product is terrible.

I reviewed a reverse mortgage for a client, the maximum guaranteed payout was 62% of the value of the home, even worse the client lost all future equity growth and still had to pay real estate taxes, insurance, and maintenance. One reason the payout is so low is that the salesman’s commission is huge.

Chances are that if a person needs a reverse mortgage they have already made several poor financial decisions or made no plans for retirement, so they are easy targets for commissioned salesmen. The alternatives to a reverse mortgage are as follows:

  1. Sell the house, then buy a smaller home and put the balance of the cash in a safe investment
  2. Rent the home and move somewhere with low rent, so that there is monthly income left over from the monthly rent payments.
  3. Sell the home and reserve a life estate, meaning the homeowner gets immediate cash and can remain in the home indefinitely
  4. Better yet, sell the house to a child, carry a note, payable in monthly installments, and reserve a life estate. You get monthly income and remain in the home.
  5. Rent a portion of the home for monthly income. There are a lot of benefits for single seniors to share a home. Zoning laws would need to be checked regarding this option.
  6. Sell the home, receive 100% of the value and rent an apartment, or rent a room from family or friends.

The one excuse that I hear for not acting on one of the above alternatives is “I want to stay in my home.” It’s time to make a mature decision and face reality that what you “want” is not as important as your financial security.

The bottom line is never sign a reverse mortgage without consulting with an experienced real estate lawyer. Always be present if elderly parents meet with a salesman marketing reverse mortgages. While every reverse mortgage may be slightly different and every salesman tells a good story, never sign one at the initial meeting, think it over and then visit an attorney.

Just because you’ve gotten in the last word doesn’t mean you’ve won the argument.

B. Construction Contracts-Change Orders:

Most people are wise enough to obtain a written contract when an agreement is reached to build a home, remodel a commercial building, or act as a subcontractor for a prime contractor. Everyone knows that this protects both parties. There is no such thing as a “standard” contract so it’s always wise to seek counsel to review the initial contract.

Virtually all construction projects require at least a few changes once the work is started. As a result, most contracts have a clause similar to the following: “Owner, without invalidating this Agreement, may order changes in the Work consisting of additions, deletions or modifications, the contract price and completion date being adjusted accordingly. Any changes in the Work must be authorized by written change order signed by the Owner and Contractor.” Many cases handled by Andersohn Law Office, PC are a result of the parties not entering into written change orders. Often time parties were in a hurry and requested changes on the spot agreeing to “take care of the paper work later.”

The result is that the homeowner gets over charged or the subcontractor never gets paid, as they violated the contract.

For commercial construction normal recovery in Colorado for an unpaid subcontractor is not a reasonable hourly rate and cost of materials, it is the increased value of the building as a result of the improvements. Often times this is substantially less than the actual cost to complete additional work.

Commercial construction contracts often allow the contractor to demand additional work and establish the price at their discretion. This gives the prime contractor an incentive to plan numerous change orders in advance.

Homeowners and subcontractors should always demand signed change orders.

C. Revise Your Will?

Website last willIn 2001 a person’s exclusion for federal estate tax was $675,000, meaning any assets in excess of $675,000 would be subject to estate taxes. Many clients with estates over $675,000 wisely executed revocable trusts and wills with A-B Trusts. The intent being that upon a spouse’s death $675,000 would be placed in the B Trust (Family) for the surviving spouse and children. These funds would be managed by a trustee with discretion to limit distributions of principal to the surviving spouse, so that the funds would not be included in the estate of the surviving spouse (i.e. not subject to estate taxes). The balance of the estate would go into the A Trust (Marital). The surviving spouse would have unlimited access to both income and principal in the Marital Trust.

Today, with the federal exclusion at $5.49 million, most people will never pay federal estate taxes, so the need for the Family Trust may not be desirable. A $1.5 million estate with a will written in 2001 will only fund the B Trust (Family Trust), thereby restricting the surviving spouse’s access to funds. Seniors that have A-B Trusts in their older estate planning documents may want to revise them to eliminate the Family Trust or to allow the surviving spouse to decide how much of the estate should be used to fund the Family Trust. There are dozens of issues which must be considered to make this decision. It may be wise to review estate planning documents with a lawyer to determine if they meet your current needs and goals.

Dreams are where you want to go; work is how you get there!

Other Reasons to Update your Estate Planning Documents:

  1. If your POA is dated before 2003, it may need to be updated to authorize your agent under HIPAA to obtain your medical records.
  2. If your living will/advanced medical directive is dated before 2009, you may want a new living will. The suggested document now is more detailed and addresses several new issues.

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A.    Don’t Delay Estate Planning

B.    High or Low Tech Record Keeping

C.    Pipeline Easements – Oil & Gas

D.    The Next Generation / Probate of Farms and Ranches


A.    Don’t Delay Estate Planning

It is so easy to wait to do your estate planning until you “really need it”.  I know of two situations in 2015 where men over 80 years of age waited to see a lawyer to prepare a will until they had serious health issues.  Both died within days and never signed their wills, to the detriment of their family members.

Website plantWhile your will is very important, do not forget about encouraging your parents, an elderly uncle, or your children with young ones to get wills and trusts in place.

The best time to plant a tree was last year and the second best time is tomorrow—the same can be said about signing a will and power of attorney.

B.     High or Low Tech Record Keeping

Everyone could improve their record keeping system.

At the very least, all adults should have their deeds, financial accounts, bank statements, insurance policies, tax records, brokerage records, and retirement plans in one place in case of a health problem or an untimely death.

In addition, the titles and bills of sale for a person’s car, motorcycle, snowmobile, boats, and ATV need to be organized.  There are also collectibles, antiques, coin collections, guns, tools, and sporting goods scattered throughout homes, garages, and shops.

The old method of manila files, hand written notes, and a filing cabinet still works –as long as a person advises his or her heirs of the location of the same.

For people with access to a scanner and computer, one Saturday of scanning financial records, tax returns, bank statements, titles, etc. and loading those important documents onto a thumb drive or CD can greatly improve organization.  Lists of serial numbers for guns, bikes, guitars, equipment and other sporting goods should also be scanned along with pictures of the item.  Why the pictures? Think of natural disasters (floods or forest fires), an insurance company will be a lot easier to deal with if a claimant has documentation. Website laptop

A thumb drive is easy to store in a home safe or safety deposit box.  It is also easy to give a copy to a son or daughter that will handle a person’s affairs upon death or disability.

Even if a person never updates the records, once complete, a trustee or personal representative will have a foundation for determining the assets of an estate.

C.    Pipeline Easements – Oil & Gas

Even with the downturn in the oil and gas business due to unusually low oil prices, the oil industry is building numerous pipelines in Eastern Colorado.

The standard easement agreements presented to a landowner usually require substantial modifications to address the unique circumstances of each farmer or rancher.

Nathan L. Andersohn has experience in the oil and gas industry and will negotiate with the pipeline companies on behalf of any landowner.

D.    The Next Generation / Probate of Farms and Ranches

Transferring ownership of a family farm or ranch to the next generation results in numerous legal and financial decisions.

An elderly landowner could sell the land and leave the funds to his or her children.  However, paying income taxes on the transaction would substantially reduce the proceeds from the sale of the asset.  The land owner could leave the property to his three children in his Will or Revocable Trust.  The good thing is the heirs’ tax basis for the land would be fair market value on the date of their father’s death.  More than likely the landowner would prefer that his children retain the family farm, which may include water rights, oil, gas and mineral rights, and crop or grazing income.

The following problems could arise anytime there is joint ownership of farm or ranch land: (1) If one child decides he or she needs cash, the child could force the sale of the farm or sell his or her share to a stranger; (2) a child files bankruptcy and the creditors take the bankrupt child’s 1/3 share; (3) should a child get divorced, the child’s 1/3 share could be considered marital property, subjecting it to the claims of the departing spouse; (4) a joint owner is sued and their 1/3 interest becomes subject to a judgment lien; or (5) If a child fails to pay income taxes, their share will be liened by the IRS.

One method to defeat many of the issues listed above is to transfer the farm into a limited liability company (“LLC” or “Company”) and leave each of the three children a 1/3 interest in the LLC.  When the company is created an Operating Agreement or Buy/Sell Agreement restricting ownership, sale, and management of the company should be executed by all of the children (“Members”). The restrictions may include: (1) the assets of the company cannot be liquidated without an 80% vote of the Members; (2) Members are required to be family members; (3) all sales of membership interests are subject to reasonable terms ofpurchase at appraised value; and (4) provisions for transfers to future generations.

A benefit of owning a valuable tract of land in an LLC is that the majority of the children usually elect a Manager of the LLC to centralize the management of the company’s business activities.  In a family owned company with 5­-6 siblings, and in a few decades, 10-15 grandchildren, it is difficult to manage the day to day affairs of an active farming operation, hence the benefit of an elected Manager.  Anyone who has co-owned property and dealt with payment of real estate taxes, crop insurance premiums, 1099’s for crop insurance payments, CRP payments, 1099’s and 1098’s for


mortgage interest payments and patronage rebates knows that allocations are often times wrong and if nothing else, very confusing come tax season.

Another benefit of having a Manager is the negotiation of oil & gas leases, easements, and accounting for oil & gas income.  If the widower owns 100%

of his mineral rights and has the potential of long term production of oil, it is possible it would be split between 15-20 individuals after two generations.  If the oil income is the primary income for a ranch it would be beneficial to retain the income in a company account to pay taxes,

insurance and maintenance expenses. If excess income remains after payment of expenses, quarterly or annual distributions could be made to Members.

All of the above would also apply to a family ski condo, fishing cabin, or income-producing commercial property.

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 Header 1Legal Update January 2015

A.  Using Appropriate Notary Blocks

B.  Updated Employment Verification Requirement

C. Inherited IRAs Are Not “Retirement Funds”

D. Sale Of A Business

E. Your Spouse May Not Inherit Your Entire Estate If You Don’t Have A Will

A. Using Appropriate Notary Blocks

When preparing real estate documents, it is important to use the correct notary block to validate the document. There are two types of notary blocks: Acknowledgments and Affirmations. Deeds and other real estate instruments require Acknowledgements.
An Acknowledgement certifies important things about the signer, such as that the signer is who he or she claims to be, that document is genuine and signed voluntarily, and that the signer is of sound mind and over the age of 18. All of these characteristics must be met to have a legally enforceable real estate contract.
On the other hand, an Affirmation is an oath about the truth of the information contained in the document, and it does not address the capacity of the signer. While this is important, the capacity of the signer is much more important to a real estate contract.
Title companies in Colorado have been known to use incorrect notary blocks. This can threaten the enforceability of the documents, so make sure that the notary blocks conform to the above guidelines when you sign important real estate documents. Here is an example of an Acknowledgment:


B. Updated Employment Verification Required For Colorado Employers

The Colorado Department of Labor recently updated the Affirmation of Legal Work Status form that all Colorado employers are required to complete when hiring new employees.  The major change, which went into effect on October 1, 2014, is that the form must be completed within 20 calendar days after each new employee is hired; the previous form only required the form to be completed 20 days after a new hire.  The updated form can be found on the Colorado Department of Labor website:

All private and public employers with employees in Colorado must comply with the Employment Verification Law; use of the Affirmation of Legal Work Status form provided by the CDLE is mandatory. Electronic copies of the affirmation form are acceptable, and employers must make and keep copies of the identity and employment authorization documents that are used to complete federal Form I-9 for each newly hired employee (Note: this differs from federal law, which does not require employers to retain copies of the identity and authorization documents).

C. US Supreme Court: Inherited IRAs Are Not “Retirement Funds”

Retirement funds, such as 401ks, IRAs, and SEPPs, are exempt assets under the US Bankruptcy Code. This means that if a person files for bankruptcy, he or she does not have to give up these funds to creditors. Historically, this protection extended to retirement funds to which an individual contributed during his or her working life, as well as to retirement funds that an individual inherited from parents or grandparents.

However, in the recent decision in Clark v. Rameker, Trustee, the Supreme Court has held that inherited IRAs are not “retirement funds” according to the US Bankruptcy Code.  Therefore, individuals must give up inherited IRAs, 401ks, or SEPPs to their creditors if they file bankruptcy. This decision will have profound implications on estate planning, so be sure to keep this in mind and ask how this decision will affect your estate planning needs.

 D. Sale of A Business

I was involved in a business transfer wherein my client signed a letter of intent that stated it was binding and governed by the laws of New Jersey.  It was literally drafted by New York City lawyers, who then drafted a 58 page sale document.  My client showed up at my office with the sale document and asked me for a “quick review”.  Needless to say, it was a rough negotiation as the seller was already bound by the letter of intent.  The legal fees over the next 45 days were extreme.

Always see a lawyer before you sign a letter of intent.

The controlling document of a sale or purchase of a business is a detailed contract that must be carefully drafted.  A lawyer generally cannot represent both the buyer and seller.  A client should never rush into a deal before consulting legal counsel.  Most transactions will be Asset Purchase Agreements for small to medium sized businesses.  Some will involve the purchase of stock of an existing entity.  The parties need to seek the counsel of CPAs and attorneys to determine the most advantageous way to transfer a business.

A business sale that involves financing real property or franchise agreements will require additional drafting to address issues related to the assets being transferred and contingencies of the purchase.

Any business transfer has dozens of issues including retention of employees, tax basis of assets, assignment of leases and the disclosure to employees and the public.

The general rule is that a seller who carries a portion of a percentage price will receive a higher sales price, but will also run a much higher chance of seller default and litigation.

Money spent negotiating a contract that is well thought-out and covers every issue is always beneficial.

E.     Your Spouse May Not Inherit Your Entire Estate If You Don’t Have A Will

When a spouse dies, the surviving spouse usually receives the assets of the deceased because the assets were owned in joint tenancy or there was a will leaving everything to the surviving spouse.

However, if the property isn’t jointly owned and there isn’t a will, the surviving spouse may not inherit all of the assets if:

(1) The deceased’s parents are living.

(2) The deceased spouse has children or  grandchildren from a previous marriage.

The reverse may also be an issue.  If a person has children and grandchildren from a long-term marriage, and becomes widowed, does that person really want a subsequent spouse to inherit everything?

There isn’t one correct way to do estate planning; it all depends on levels of wealth, family situations, and the needs of dependents.  Consulting with a lawyer to draft a prenuptial agreement or will is the best way to protect your family.

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