_{Thanks to: Albertson & Davidson, LLP | Estate Planning}​
California’s Proposition 13 does not allow the County Assessor’s office to increase the appraised value of property except for a small amount each year unless there is a change in ownership. Proposition 13 is near and dear to the heart of every California real property owner. It prevents your property taxes from skyrocketing as your home’s value rises. How can this lead to inheriting favorable tax treatment?

When a person dies and a child inherits the home, the low valuation of the real property can remain intact with the child; provided that the child files a parent-to-child exclusion form. You see, Proposition 13 allows a child to keep the parent’s tax value of the home. That’s a great benefit to any child. If this did not occur, the tax assessor would revalue the house to its current value. (In the above example, the tax value of the house would go up to $2 million.) This revaluation then results in much higher real property tax being imposed.

For Example:

If you bought a home in 1995 for $100,000, but that home is now worth $2,000,000, the county tax assessor is not allowed to value your home at $2 million for real property tax purposes. Instead, the value is limited to $100,000, plus a small percentage equal to the consumer price index or 2%, whichever is less. The real property probably has an appraised value of around $125,000. The real property tax is approximately 1% of the appraised value. In this example, the real property tax on a house valued at $125,000 is $1,250. Whereas the real property tax on a house valued at $2 million is $20,000. Proposition 13 effectively saves the real property owner around $18,750 in tax ($20,000 – $1,250). In turn, passing* that onto their heirs. That’s a huge savings.

What’s the catch?

As with most good things, however, there’s a catch. The parent-to-child exclusion must be filed within three years of the decedent’s date of death. Failure to do so will result in a supplemental assessment that will charge the higher tax amount for all years when the parent-to-child exclusion was not requested.

So must a Trustee file this parent-to-child exclusion form, or is that the duty of the Trust beneficiary? That depends.

In the case of a Trust that will distribute real property to the Trust beneficiary quickly (within a few months). It is most likely the beneficiary’s duty to file the parent-to-child exclusion because the Trust no longer owns the home.

If the Trust terms require real property to be held in Trust for several years, or if the Trustee holds real property in Trust against the Trust terms, the Trustee must file the parent-to-child exclusion form. If your parents are leaving you a house or other real estate, make sure someone… anyone…files a parent-to-child exclusion form. Failure to do so could cost you several thousands of dollars in extra taxes.

By the way, if all the children are deceased and real property passes from a grandparent to a grandchild. Thus giving the grandchild the right to the same exclusion. Certain limitations apply, and it won’t work if the grandchild’s parent is still living. If you are a grandchild set to receive real property from a grandparent, check with a professional to see if you can obtain these same real property tax benefits.

Whether leaving due to a fire, flood, vacation, or medical emergency, knowing that you have their essentials ready to go can make a huge difference. Older adults have more to worry about than younger households because the threat of an unexpected serious illness making it necessary to vacate with short notice is dramatically higher. In addition, if an older adult leaves home voluntarily on vacation, the chance of a medical emergency arising is also greater. Reducing stress and anxiety is a crucial factor in smooth sailing.

If an Act of God, such as a fire or storm, requires you to leave on short notice, it is harder for older adults to recover from that loss than younger adults. For one thing, walking is more difficult. Memory issues can impede recreating information. As we age, we become less able to deal with change or emotional loss. Living in strange spaces, shelters, or children’s homes is distressing. For better mental, emotional, and physical recovery, you need one person you can trust with all your important information.

The Savvy Six

Here are “THE SAVVY SIX” things you need to make plans for if you leave home for more than 24 hours for any reason. Proactively getting this list together will improve the quality of your life and guarantee you don’t have to spend hours recreating the wheel. They are:

1. Personal computers. It is strange to put this item first, but I have a reason. Items 2 through 6 are all about physical things. But to not acknowledge that benefits of the digital age would be silly. Computers usually contain or can contain a lot of important documents, photos, and other files. However, no one travels with a desktop computer, and not all of us take our laptops either. You will grab it in an emergency, but what if you cannot? So what to do if an emergency strikes you or your home while you are away?
2. People and Pets. Have a plan for taking care of pets and dependents. Ensure all information about where pets will be boarded, what they need and eat, vaccinations, and any quirks they have noted. If a spouse is in a nursing facility, ensure their whereabouts and particulars are known and documented. If caring for a dependent adult child, ensure that someone has agreed to be responsible for them if anything should happen to you. Memorialize all of this information in a document.
3. Papers and phone numbers. Passports, birth certificates, marriage licenses, real estate deeds, rental agreements, wills, trusts, etc. Essential phone numbers include doctors, relatives, legal and financial advisors, neighbors, friends, landlords, tenants, and veterinarians.
4. Prescriptions & Toiletries. Taking pictures of your medicine bottles and uploading them to your computer is a smart move. Same with essential toiletries.
5. Pictures and personal items. Photo albums, framed photos, irreplaceable memorabilia, art, jewelry, and valuables. Take pictures of these just in case.
6. Plastics. Credit cards, ATM cards, insurance cards, ID. These can also be documented in pictures taken with a smartphone and uploaded.

What if’s.

The problem is you can’t take all these things with you on vacation or on a trip. Then in an emergency, you may not have time to grab them. Many of these items will be lost if you are away and your home is destroyed or damaged. Who will have the information you need to be taken care of if you get ill or injured? So what to do?

Some people use Cloud Storage, but many seniors are uncomfortable with that. In addition, you have to ensure that someone has the current password. Plus, it is a lot harder for many of us to make changes to documents in Cloud Storage, and you usually have to pay a monthly rental fee.

Keep it simple.

I think a USB drive is a simpler and more elegant solution. This is a small portable external hard drive you can keep and duplicate. It will guarantee that documents, information, pictures, and personal items can be duplicated and accounted for. They come in sizes from 4GB to 128 GB and larger. Buying one that has 128 GB capacity should be enough for most. Prices are usually from $20 to under $100.

All your documents can be saved in PDFs on your computer and your advisor or relative’s computer. This also makes changes more manageable and can be done immediately. In addition, other items can be photographed with a smartphone and the images uploaded too, like a passport, marriage license or birth certificate, or social security card.

All of “The Savvy Six” can be saved to your USB. And it is small enough even to carry on a key chain.

After you SAVE them into a file on the computer, you can SAVE AS on a USB drive, and you now have a portable duplicate; you can do this more than once. That way, you can keep one with you as you travel and give another to a trusted relative or advisor for safekeeping.

By all means, you should put yourself on a schedule to update once a year.

If you don’t want to do this yourself, there are many sources for senior concierge services that can help you do it.

^{Originally appeared 9/6/2018}

Recessions can be hard to predict, but that’s not the case today. The COVID-19 pandemic sweeping the globe has pushed the U.S. economy into recession. As large portions of the country stay closed, the second quarter will be even worse. With U.S. consumer spending and industrial production falling sharply, there are five realities of this recession to keep in mind.

1) We’ve been here before (sort of).

The largest post-1950 quarterly GDP decline was 10% in the first quarter of 1958.

This sharp drop came amid the 1957–1958 recession, which resulted from a confluence of factors, including a flu pandemic. While the makeup of the present-day economy is much different, the U.S. is not unfamiliar with pandemic-related economic turmoil. The U.S. economy bounced back strongly in the late 1950s, with growth surpassing 5%.

I anticipate that a rebound in activity might start as early as June in some sectors and more broadly in the third quarter as areas of the U.S. try to ease restrictions.

2) Recessions have tended to be short.

The subsequent expansions have been powerful. The good news is that recessions generally haven’t lasted very long. While this time may be different, a Capital Group analysis of 10 cycles since 1950 shows that recessions have ranged from eight to 18 months, with the average lasting about 11 months. For those directly affected by job loss or business closures, that can feel like an eternity. While there’s no way to minimize that feeling, investors with a long-term investment horizon should try to look at the big picture. The average expansion increased economic output by 25%, whereas the average recession reduced GDP by less than 2%.

3) It’s about the consumer.

The U.S. consumer accounts for approximately two-thirds of the economy. With unemployment claims skyrocketing — although many may be temporary — and consumers staying in their homes, a weakening economy is no surprise. The $2 trillion stimulus package will help support some levels of consumer activity, but employment uncertainty is likely to keep many consumers in a frugal mindset.

4) Lower oil prices may be a tailwind for the economy.

A precipitous decline in crude oil prices has put pressure on the energy sector. May oil contracts turned negative in April as producers scrambled to find storage for bloated supply stores, exacerbated by consumers’ sharp reduction in vehicle usage and gasoline consumption. While lower oil prices may hurt U.S. oilfields, consumers and transportation-heavy companies can benefit from cheaper energy prices.

5) Timing may not be everything.

Waiting for the all-clear may leave investors missing out on market gains. Since World War II, in recessions with a corresponding equity correction, the S&P 500 has bottomed, on average, three months before the end of each recessionary period. It’s little solace to investors who have endured market volatility, but even as the economy weakens, there are opportunities to invest in great companies at a discount.

While the adage that the stock market is not the economy is true, market volatility tends to be captured, with a lag, in economic data. Even as financial markets rebound, the economy may lag behind. Focusing on long-term investing can help investors navigate short-term volatility.

^{Written by Darrell Spence, an economist and research director with 27 years of investment experience, all with Capital. He earned a bachelor’s degree in economics from Occidental College and is a CFA charter holder.}

^{With thanks to Dean Catalano, SVP, Capital Group. dean.catalano@capgroup.com}

When it comes to the value of $100 in the United States, do you know how far your fixed retirement dollars will go? It varies greatly from state to state. In Mississippi, for example, it’s about $117, while in New York, it’s worth only $86. Because of the lack of geographic adjustments, this is critical for retirees on fixed incomes.

If you’d want to see how much money you’ll spend in each state, the Tax Foundation crunched the numbers using data gathered from the US Bureau of Economic Analysis (BEA).

Using RPPs, the BEA calculated a region’s price level in relation to the United States as a whole. The BEA concluded that “areas with high/low RPPs often correspond to areas with high/low price levels for rentals” after studying prices for “all consumable goods and services, including housing rents.”

In terms of RPPs, Hawaii, New York, and California are the states having the most. Those states have some of the most expensive rental housing costs nationwide. Mississippi, Arkansas, and Alabama have the lowest RPPs.

According to the Tax Foundation, regional price disparities are significant. Mississippi has around 35% more purchasing power than New York. In other words, if you have $50,000 in after-tax income in Mississippi, you would need $67,500 in after-tax income in New York merely to afford the same overall standard of living.

What Can You Do?

Some states are exceptions from the general norm. According to the Tax Foundation, North Dakota has high incomes but low costs.

We should pay attention to this since it could significantly impact how we perceive a state’s true poverty or wealth. Consider two states, North Dakota and Vermont, where the average yearly wage is $52,000. Even after considering price parity, North Dakota’s real income is approximately $7,000 higher.

Those on a fixed income who wish to improve their quality of life without having to relocate abroad should keep this in mind. If you intend to do a lot of traveling, it can be worth your while to relocate to a state with a low RPP . You can take advantage of the lower cost of living.

Before applying for a reverse mortgage, consumers must fully understand all the costs, terms, and conditions. Reverse mortgages are a family decision. Older homeowners should discuss reverse mortgages with their families or other trusted advisors.

If you’re considering a reverse mortgage, it’s a good idea to sit down with your entire family and talk about what you’re doing and why you’re doing it. As someone who wants to get a reverse mortgage should look at the main requirements and see if you meet them.

This decision can affect the borrower’s family, especially regarding what they might get as an inheritance. Children or other family members who will be involved with the borrower’s estate should also know the loan’s key features. This will help them figure out what will happen when the borrower dies.

Everyone must understand that you are withdrawing the equity in your home, and while your lawyer may inform you that your children can still inherit the property, there is a “catch.”

The Catch

The “catch” is that their heirs or any surviving family members must pay back the amount of equity taken out of the home and any interest charges earned while the borrower was alive and living in the house like with any other mortgage.

In the some case scenarios, if the family wanted to keep the home and not sale they would have to refinance the property. So if the original borrower had a forward, the property would still need to be refinanced.

If there is a forward or reverse mortgage and the borrowers are no longer living in the home, the property must be refinanced. This method transfers financing or takes the property out of reverse. Even if the person inheriting it is qualified for a reverse mortgage, it must be refinanced into their name. The main distinctions are the timelines and fee structure for each type of mortgage.

With this strategy, the borrower’s assets didn’t have to be depleted while alive and would be passed on to heirs as the reverse mortgage covered such costs. It results in a modest impact on the estate while leaving more for the heirs to inherit.

The family should be aware of these components. Families seeking money from their homes may have other options. Instead of a reverse mortgage, they might consider a home equity loan. Individuals must consider their current situation and long-term goals before making any decisions.

The Costs

Prospective borrowers should also be aware of the costs and fees of a reverse mortgage up front. A common complaint about reverse mortgages that many people have made.

If you decide to utilize a reverse mortgage, you’ll need to know all the fees and costs involved. Only after deciding if it’s a good fit for your family.

As with any decision, any family member with a stake in a family member’s finances should “read the fine print”. The same is true for a reverse mortgage.

Understanding the cost involved is critical. Read about items like origination, appraisal, and other fees you’ll have to pay. You’ll also have terms to follow if you get a reverse mortgage. You must pay insurance, taxes, and maintenance to support the reverse mortgage. In some states, borrowers with forward mortgages must still pay property tax, and homeowner insurance and maintain the property.

Setting up a meeting with an Accredited Financial Counselor for your family is an excellent approach to receiving opinions and information. It is not uncommon for all family members to disagree on the best course of action.

Ultimately, it is up to the homeowner and their trusted advisor to weigh all of the ideas and concerns and make a final decision.

SayWhyNot, Inc appreciates the opportunity to assist and advise in a fiduciary capacity. Contact us today to schedule a Zoom meeting with you, your family, and your advisers.