Monday, March 23, 2020

COVID-19 effects on the Real Estate Market

           With the Coronavirus effects growing with each passing day the Florida real estate market has been turned upside down, in both negative and positive ways.

          2019 ended with Florida single family sales up nearly six percent, with townhomes and condos mostly flat.  South Florida had a more modest two percent growth rate for single family homes, but townhomes and condos fell by nearly two percent over 2018.  Prices continued to climb with the average single-family homes selling for $360,000.00.

          2020 started with a bang, with single family sales through February 2020 up thirteen percent and townhomes and condos up twelve and one-half percent.  Nationally, new home sales jumped nearly eight percent, to a seasonally adjusted annual rate of 764,000 units last February, the highest level since July 2007.

          Then the virus hit, dramatically changing the real estate landscape.  Reaction in the financial sector was swift.  At the beginning of March, the Federal Reserve cut interest rates by one-half percent, then two weeks later, another rate cut to make the borrowing rate from the Federal Reserve essentially zero percent.  The goal was to make money cheaper and protect the economy from falling into recession. 

          Despite these moves, and now a promise of an over one trillion-dollar infusion by the federal government, the stock market has dropped dramatically, losing nearly 1/3rd of its value since record highs on February 12.  This has caused the yield on treasury bills to also fall dramatically, falling nearly one percent in one month.  The 10-year treasury yield, the rate most correlated with mortgages, has fallen from 1.5% in mid-February to below one percent on March 21. 

          This has led to a drop in home mortgage rates, perhaps the one silver lining in this otherwise catastrophic problem.  Thirty-year fixed rates have remained low, dropping from five percent in late 2018 to three and three quarters to start 2020.  Rates dipped as low as to three and one quarter (a record all-time low) on March 5 amid worsening virus news but have now increased to mid to high threes in response to the large number of loan applications inundating lenders.

          Once the backlog lessens, and assuming the commitment to buy mortgage back securities by the Federal Reserve continues (started at 200 billion and could go over 1 trillion), rates will likely again fall, with some predicting rates at or below three percent by June 2020.  If you are currently paying over four percent on your home mortgage you should watch these rates carefully and be prepared to lock in timely.  On a typical $300,000.00 loan, a one percent drop in interest will save over $2,000 the first year.

          Closing on these new loans, as well as existing home sales, has become a challenge for attorneys and title companies due to all the movement restrictions.  However, a new law that went into effect on January 1 is providing some relief for those still willing to close on sales and refinances.  The law now allows for remote online notarization of legal documents, including affidavits, deeds and mortgages.

          Using a computer equipped with a webcam, two forms of photo identification and a cellphone that can take pictures and upload the images will be what is needed to conduct a remote closing from any location, including overseas (for United States citizens).  A seller or buyer/borrower will be given an email link to log into a special website to conduct the closing. 

          A common setup will have a text messaging window and instructions on the left, documents to sign in the middle and three video windows on the right.  Once logged in the consumer will see themselves in a video window, along with the notary public and the closing agent.  The user will hold-up their two ids for the notary to review, and once confirmed as valid, the consumer will use a special application on their cell phone to upload pictures of the ids for further verification.  Once verified, a set of common, consumer credit derived multiple choice questions, will further verify identity, such as what street did you live on 1995 and what color car do you own.

          Once identity is verified, the closing agent will direct the consumer to read and sign the documents on screen using their choice of simulated signatures and initials.  As each document is signed, the notary will notarize where needed, and for documents requiring witnesses, such as deeds, both the notary and the closing agent will sign as witnesses to the document.  Once all closing documents are signed, the consumer can either download a copy or wait for an emailed copy.  The closing agent will take the documents that have to be recorded, such as mortgages and deeds, and electronically submit them to the Clerk of the Circuit Court using an e-filing program to official record the document 

          So now a sequestered seller in California can sell and a vacationing buyer/borrower stuck in Italy can buy and close on their loan as if they had flown in and closed at the closing agent's office.  With low rates and remote closings, the devastation to the real estate industry from the virus will be partially blunted, but make no mistake, it will hurt sales dramatically and may take months or the rest of the year to recover.

Michael J Posner, Esq., is a partner in Ward, Damon, Posner, Pheterson & Bleau, P.L. a mid-sized real estate and business-oriented law firm serving all of South Florida, with three offices in Palm Beach County.  They specialize in real estate law and can assist sellers and purchaser remotely with closing and financing of residential and commercial real estate.  They can be reached at 561.594.1452 or at

Tuesday, December 24, 2019


          Since the 1920s, property owners could trade investment property on a tax-free basis.  The only catch was that you had to find someone to trade properties with you simultaneously.  Mr. Starker had investment property he wanted to trade, but no one to trade with, so being resourceful, he sold his investment property and immediately used all of the proceeds to buy another, claiming that he had really traded the property, that his investment was converted to tangible funds for only a short period of time, and that should not be counted against him for tax purposes.
          Unfortunately, the IRS did not agree, and they demanded he pay the profits on his sale.  This result was challenged by Starker and he eventually won, successfully deferring his profits from his sale.
          In order to address this result, Congress approved a revision to the Tax Code to authorize “Tax Free Exchanges” for certain types of real and personal property.  This code section created a labyrinth of regulation, requirements, issues and strict timelines that must be complied with for a successful tax-free exchange.
          The most common 1031 exchange is the sale of real estate with all the proceeds used to buy new investment property.  For example, Mr. Jones owns a building in Scranton that he bought for $100,000.  Assuming no depreciation or capital improvements, his purchase price is his basis in the property which he wants to sell, which is often referred to as the “relinquished property.”
          In 2019 Mr. Jones’ building is now worth 1.6 million dollars.  If he sells and pockets the money, he will owe almost $225-300k in capital gains taxes.  However, if Mr. Jones uses the proceeds from the sale to buy a building in Florida, he can defer all the tax due. 
          Note this is not tax avoidance, because the new apartment in Florida, called the “replacement property” will also have a basis of $100,000.  When it is sold in the future, the gain will be recaptured.
          In order to effectuate a 1031 exchange, a seller of relinquished property must enter into an exchange agreement with an independent third party prior to closing, called a Qualified Intermediary.  Once the relinquished property is sold, the net proceeds must be directly delivered to the QI.  In no case can the money go to the Seller or his agents, as the fiction of “no control” over the sale proceeds is required to protect the tax-free exchange.
          Within 45 days of the sale of the relinquished property, the Seller must identify the replacement property by written notice to the QI.  Up to 3 properties can be identified without special consequences.
          The seller has 180 days to close on the identified property(ies), with the monies held in escrow by the QI transferred directly to the seller of the replacement property.  If the closing is not timely completed the exchange fails, and the tax becomes due.  Please note that if the 180-day window overlaps April 15, you must file for an extension, or your window will be terminate on April 15.
          When originally promulgated, 1031 exchanges required deeding of the relinquished and replacement properties to the QI, resulting in extra costs and potential title issues.  However, the IRS now allows direct deeding, which eliminates this step.  However, the QI should still be listed as the seller or buyer on your closing statement, to reflect the exchange status of the transaction.
          While 1031 exchanges are limited to investment property, it does not mean that you can not invest in residential real estate.  For example, if you are selling investment property with a large gain, it is permissible to complete and exchange that property for a residence in Florida, so long as your initial intent is to use same as an investment property.  While there are no promulgated time periods for establishing investment intent, the property should be rented for at least two or more years in a true, arms length fashion, to avoid an IRS challenge before you take personal residency of the replacement property.
          1031 exchanges are not limited to equal swaps of value.  You can make a partial deferment by buying a lesser value property, with the taxes prorated on the percentage difference in value between the relinquished and the replacement property.  1031 exchange proceeds can be used to leverage more than one replacement property and can be used to acquire a slice of a much more expensive property, in the form of tenants in common purchase.
          One key element of 1031 exchanges are the strict timelines relating to the time frames.  These are strictly applied and exchanges outside these periods will be rejected. Reverse exchanges are also permitted, allowing the acquisition of the replacement property up to 180 days before the sale of the relinquished property. 
          As exchanges are complicated, the cost of completing an exchange may make the benefit of deferral of taxes less enticing. Our firm charges approximately $1,000.00 for a simple exchange, plus costs.  In addition, there are extra accounting charges for exchanges, and your sale proceeds will be tied up at least 180 days, usually without interest, during the exchange period.  Therefore, a well thought out exchange strategy, including a thorough tax analysis, should be made prior to proceeding with an exchange.

Sunday, September 22, 2019

Fannie Mae and Freddie Mac Reorganization

         President Trump has just announced plans to seek substantial reorganization of the Federal National Mortgage Association (FNMA) and known commonly as Fannie Mae, and the Federal Home Loan Mortgage Corporation and known commonly as Freddie Mac, the two main government sponsored entities that provide the funds for nearly half of the residential mortgage loans in the United States.

          Fannie Mae was formed in 1938 during the Roosevelt Administration as a government agency to expand mortgage lending so as to encourage homeownership and home building.  Prior to its creation, most mortgage loans were short term with a balloon feature, as banks were mostly dependent on their own savings accounts to fund the home loans. Any long-term lending meant tying up capital, precluding new, potentially more lucrative, new home loans and with defaults as high as 25% in the 1930s. substantial risk

          Fannie Mae allowed banks to make long term, fixed rate mortgages without the commensurate tying up their capital (or default risk) by buying the mortgage loans from banks.  They created a secondary mortgage market wherein loans purchased by Fannie Mae would be sold as collateralized mortgage obligations or later as mortgage-backed securities (MBS) to investors.  This freed up the banks to make new loans and receive a fee for each loan originated and sold to Fannie Mae.  In addition, the loans sold by Fannie Mae were guaranteed by the full faith and credit of the United States making the loans less risky even if the underlying borrower stopped payment and the mortgage was foreclosed.

          In 1954, Fannie Mae was reorganized into a mixed ownership corporation, selling off common shares to the public while the federal government retained control through its ownership of Fannie Mae preferred shares.  Further changes occurred in 1968 when Fannie Mae was converted into a fully private corporation, splitting the entity into Fannie Mae and the Government National Mortgage Association (commonly known as Ginnie Mae, which remained a government organization, and which insures certain mortgages such as loans by the Veteran’s Administration).  

          To increase competition in the secondary mortgage market (which Fannie Mae had controlled for thirty years), the government created a new government sponsored entity, Freddie Mac.  Freddie Mac was also a public company and also bought mortgage loans for sale on the secondary market. 
          The 1970s saw the steady rise of mortgage backed securities as the main vehicle of bundling of large blocks of mortgage loans.  The attractiveness of these MBS was due, in part, to the implied belief that the MBS was guaranteed by the United States, even though the entities were no longer owned by the government. 

          The 1990s and early 2000s saw the push towards expansion of the loan market to (i) increase home ownership, (ii) expand lending in areas that were previously avoided by lenders (known as redlining), and (iii) assist low to moderate income parties to obtain a mortgage loan.  This led to loosening of credit standards to meet these homeownership goals.  In addition, competition from private investment companies, who were also bundling more attractively priced mortgage backed securities, led to a more aggressive, riskier approach in lending approval by Fannie and Freddie

          This led to the subprime mortgage crisis in the mid to late 2000s with substantial defaults and failures of private investment firms and banks.  As of 2008, Fannie and Freddie owned one-half of the estimated 12 trillion-dollar mortgage market, and a true public collapse would have substantially damaged an already weak home loan market.  Instead, and as a result of mounting losses at Fannie and Freddie, the federal government placed both entities into conservatorship (essentially bankruptcy) to stabilize the housing market.

          After investing hundreds of billions of dollars into Freddie and Fannie, the institutions stabilized, and eventually became profitable, paying back the monies invested.  In fact, they have now repaid the full amount invested and a profit of nearly 110 billion dollars to the federal coffers.  

          Given this state of affairs, and the deregulatory mindset of the President, it is no surprise that he would propose modifying or even ending conservatorship.  The stated goal is to create a limited role for the federal government in the housing finance system, enhance taxpayer protections and increase the role of private sector competition.  This would be done by reducing the dividend paid to the federal government, allowing Fannie and Freddie to increase its capital reserve (now at only three billion dollars), a limited public offering and the long-term goal of total privatization.

          Given a divided Congress and the bad taste of 2008’s housing crisis, it appears that any materially changes may take years to settle.  In the meantime, low interest rates and high profits continue to benefit the federal government by holding onto Fannie and Freddie.

Michael J Posner, Esq., is a former Value Adjustment Board Commissioner, a board-certified real estate attorney and a partner in Ward Damon a mid-sized real estate and business oriented law firm with offices in Palm Beach County that handles purchase and refinance closing throughout South Florida. They can be reached at 561.594.1452, or at

Wednesday, August 21, 2019

Real Estate Update 2019

         The biggest change in the real estate market this year has been the dramatic decline in the interest rate on mortgage.  After enjoying several years of very low rates, the strong economy, rising federal rates and inflation caused rates to rise substantially last year, with the average 30-year fixed rate mortgage in August 2018 reaching 4.5% and climbing to a peak of nearly 5% in November, 2018.  Since then, the average has fallen 134 basis points to about 3.6%.  This means that the monthly cost of a $250,000 mortgage has decreased from $1,332 to $1,136, a savings of $196 per month. 

            Lower rates also mean improved housing affordability.  In May of 2018, national housing buying power was at $361,184.  One year later, the index increased to $391,913, or over $30,000 more in affordability.  In Florida the year-over data went from $314,574 to $341,844, or over $27,000 more in home affordability.  Nationally, this is due to a combination of falling interest rates and a decline in the real house prices of almost 4%, but in the same time period Florida home prices has actually increased nearly 9%.

            For many homebuyers, a thirty-year fixed rate mortgage is not the best choice.  Only about 1/3 of homeowners stay in the same home for more than ten years.  That means a majority of buyer/borrowers stay less than ten years.  Therefore, an adjustable rate mortgage (an ARM) with a fixed term (5-, 7- and 10-year products are available) before adjusting may be a better alternative.  Currently a 10-year ARM can be obtained at about 3.1%.  This is a half-point savings, which, on a $250,000 mortgage costs $1,067 per month, a savings of $69 per month. Over ten years that equals $8,280 in lower payments, and another $3,500 in less interest, for a total savings of $11,780.

            For sellers looking to sell their own homes (FSBOs or “for sale by owners”), there is a new alternative to craigslist.  Facebook Marketplace is a free online site where an owner can list a home for sale or rent.  Unlike craigslist, which gives total anonymity, Facebook shows you who the sellers are so that there is (hopefully) a lower risk of a scam. 

            If you are considering selling on your own, you can still place your home in the local multiple listing service (MLS) at very low cost.  Companies like charge $95.00 to list your home (with packages to include more photos at higher prices).  This gets you six months in the MLS and a listing on    If you want to attract buyers working with a local real estate agent, you will still need to offer a cooperating broker commission to incentivize these agents to show their customers your home.  This means paying 2-3% of the sales price to the buyer’s agent.

            August is the time for the Notice of Proposed Property Taxes, otherwise known as the “Truth in Millage” (TRIM) Notices from the Palm Beach County Property Appraiser. These should be examined carefully and if there are valuation or exemption issues, a Petition to the Value Adjustment Board should be filed. These are due the 25th day following the mailing of the TRIM notice, but such time period may be extended if the petitioner can establish a good faith basis for a late filing.

          Many petitions are resolved pre-hearing by the Appraiser’s office, but if not, a quasi-judicial hearing is held by in front of an attorney (for exemption issues) or an appraiser (for value issues) appointed by the County. Because the issues can be complex, and considering the cost of losing an otherwise valid claim, I recommend that an owner hire an exemption or valuation expert to review the case and, if warranted after review, to represent an owner at the hearing.

         With values continuing to rise despite the 3% homestead cap and the 10% non-homestead cap, tax revenues continue to rise, allowing the County to maintain the same tax rate. However, voters last November approved a new property tax to help fund public schools. An additional $1.00 for each $1,000 in property value will be assessed for the next four years with the goal to raise 800 million dollars for schools. With a median tax value of $261,900, a homeowner with a homestead exemption of $50,000 will pay an additional $211 in property taxes to cover this new tax.

Monday, August 19, 2019

Understanding Surveys

           If you ever purchased a home with a mortgage, or refinanced a home you acquired many years ago you may be asked to pay for a two dimensional drawing of the boundary of your property together with the location of all improvements shown thereon at a cost which can run several hundred dollars or even more for very large properties. Many people are confused by this expense, arguing that since the home has been located in its current position for years if not decades why do they need to pay someone to redraw and locate what are obviously perfectly good homes located in their proper position.

          This drawing is called a Boundary or Land Survey and is one of the primary requirements of a lender when purchasing/refinancing a home in Florida.  The primary purpose of the Survey is to ensure that all improvements located on a subject property are located within the boundaries of that property. Furthermore, the purpose of the survey is to show easements which could interfere with the improvements located on the property, and to show encroachments of improvements either over the property line onto adjoining property as well as encroachments from improvements on neighboring property which encroach into the property being surveyed.

          Virtually no lender in Florida will make a loan without a Survey of the property being completed.  One of the main reasons is the requirement that the Lender’s Title Insurance Policy must have the survey exception deleted, which exception may only be deleted under certain circumstances (including the requirement for a proper Survey.

          Under Florida law, the practice of surveying is limited to licensed professionals who have met the minimum requirements for registration as a surveyor or mapper under Florida law. These requirements are set forth in Chapter 472, Land Surveying and Mapping, Florida Statutes.

          In order to understand surveys, a person must first understand how property legal descriptions are created. Traditionally, descriptions were created based on the vast surveys of the United States created over two centuries ago. These north-south and east-west grids created the starting points for locating property and are known as metes and bounds descriptions. In order to facilitate development, the concept of platting was created which took the metes and bounds description and divided it into fixed lots which identify a specific property in each subdivision. For example, what was once the North 60 feet of the East 60 feet of the Southwest Quarter of the Northwest Quarter of Section 16, Township 23 South, Range 30 East, lying and being in Palm Beach County became the platted property known as Lot 1, Happy Acres, recorded in Plat Book 7, Page 9 of the Public Records Beach County, Florida.  Alternatively, condominiums described their legal description of both the common areas and buildings within the Declaration of Condominium itself, creating a legal description by unit and not by metes and bounds of the underlying land.

          There are several instances wherein the survey expense may be avoided. For example, a condominium does not require a new survey because the original survey is included in the recorded Declaration. This is sufficient to allow for the deletion of the survey exception in the Lender’s Title Policy. In addition, if the seller has an existing survey which is certified to that seller then that survey may also be used if the seller is willing to execute an affidavit stating that no new improvements have been installed on the subject property since the date of that survey. Finally, a person not financing the purchase of their property (a cash buyer) can waive the requirement of a survey, assuming the risk of any possible survey defects.

          In addition to providing the boundary description of a property, a licensed Surveyor can provide an Elevation Certificate which is used to determine the elevation of property pursuant to the Federal Floodplain Management Rules.  This Certificate is used to determine whether or not flood insurance is required or only optional.

          While survey defects are rare, they do occur, and can include problems such as fences located on other people’s property, improvements constructed over the property line or constructed within required setbacks, easements which grant access rights to third parties that are blocked by constructed improvements and even issues relating to boundary lines and access and ownership to land abutting water or to a public road. Therefore, the expense of a survey is worthwhile and can help avoid these potential future problems that are unknowable without a proper survey.

Saturday, June 22, 2019

Reverse Mortgages Update

A     In 2015 I explained reverse mortgages in this column.  Recently an article published in USA Today on June 13, 2019 ( basically claimed that reverse mortgages were simply predatory lending designed to steal seniors and the heirs homes without any benefit or knowledge.  The flaw in the article is that it fails to clearly mention several important facts:

          1.       Without the loans, many seniors would have been forced to sell the homes anyway, due to the inability to pau maintenance costs, existing loans or taxes and insurance;

          2.       No one forced these seniors to take the loans and spend the money they received, even if spent frivolously;

          3.       That a majority of foreclosures occur not due to defaults relating to non-payment of taxes or insurance but due to either abandonment of the home (residing in the home is a condition of getting and keeping the loan) or death;

          4.       Claiming that the heirs lost out on getting the home due to the reverse mortgage is a false premise, because it presupposes that the heirs deserve the home even though their parents needed and got to enjoy the benefits of the money; and

          5.       Many foreclosures occur simply because many reverse mortgages were granted before the crash, and the monies given were based on a higher pre-crash value.  Combined with the accrued interest over 10 to 15 years (a key to how these work, seniors pay nothing during the term of the loan) and all the costs of sale (as high as 8% for real estate commissions, taxes, transfer taxes and title insurance), there is little to no equity left to interest the heirs or the estate to consider selling the properties.

     As a Florida HUD Commissioner, I have handled hundreds of reverse mortgage foreclosures for HUD.  In only one instance was a foreclosure based on the failure to pay taxes.  All other cases were either abandonment of the home or death.  HUD is only obligated to wait one year after abandonment of the home or death to begin a foreclosure action, but in all cases, HUD gave the family more time to decide whether to sell or walk away.  In all my years, I have never received a complaint from a senior or beneficiary that HUD has stolen their home.

     As I stated in 2015 there are several criticisms of the reverse mortgage program.  High upfront costs are an issue and frequently not properly discussed with borrowers.  Interest rates are higher than conventional loans.  High pressure sales tactics (including late night tv ads) have encouraged seniors to take out reverse mortgages, spend the money on vacations and gifts, without consideration of the ability to pay and maintain the property going forward. 

    As a result of the number of reverse mortgage foreclosures, there was a revamping of the HUD program in 2017 to address such issues.  First, the mortgage insurance premiums charged to fund the government’s guarantee of the loan has changed.  Instead of a floating premium of up to 2.5% based on the amount advanced at closing and in the loan’s first year, a lump sum of 2% is taken at closing.  This could result in higher premiums for some borrowers.

    However, the monthly mortgage insurance premium has been reduced from 1.25% to 0.5%, saving borrowers on the accrued monthly charges at a rate of about $166 for each $50,000 borrowed.  The new rules will benefit borrowers who use their available funds at closing, but likely cost seniors who open a reverse mortgage as a line of credit for future use without drawing out fund.

     In addition, the new guidelines have reduced the amount that can be borrowed.  The maximum amount is a complicated formula based on the value of the home, the age of the borrower and the interest rate.  Lowering the amount borrowed will likely reduce the number of foreclosures, benefiting both seniors and the guarantee fund.

A reverse mortgage can be a great tool for many homeowners, but it is a program that should be carefully reviewed to insure that it fits an individual’s needs. Discussions with a cpa, your children and a HUD loan counselor are a must before taking out a reverse mortgage.

Michael J Posner, Esq., is a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  He serves as the HUD Foreclosure Commissioner for the state of Florida.  They can be reached at 561.594.1452 or by e-mail at

Tuesday, March 19, 2019

Trust Basics

            The creation of a trust for estate planning is a valuable tool that can be used to solve many specific needs, such as avoiding probate, reducing estate taxes, creating a charitable legacy, providing for future generations, protection of disabled or spendthrift beneficiaries, obtaining Medicaid reimbursement and other estate needs.  Depending on the issue to be addressed, specific types of trust can be created to provide for these goals.  Trusts can be complex or simple, can combine multiple outcomes, can be standalone or incorporated into a will as a pour over trust.  The most common types of trusts are as follows:

          1.       Revocable Trust.  A revocable trust that holds real and personal property with the creator or grantor of the trust serving as the trustee and initial beneficiary, with the power to terminate the trust at any time.  This is the most common and is used to reduce or eliminate the need for probate after death.  Upon the death of the grantor/trustee, a successor trust takes their place and directs the distribution of the trust assets to the grantor’s beneficiaries as directed in the trust.  A revocable trust does not provide creditor protection for the grantor or the grantor’s assets in trust.

          2.       Irrevocable Trust: An irrevocable trust is similar to a revocable trust that holds real and personal property.  However, the main difference is that the grantor is not the trustee of the trust and does not have the power to terminate or amend the trust after creation. Unlike a revocable trust, a properly created irrevocable trust can provide creditor protection for the grantor’s assets in trust.

          3.       Qualified Terminable Interest Property or QTIP Trust:  QTIP Trusts are used to gift a surviving spouse a lifetime income in an asset or property, and have the remainder pass to a third party (like children from a previous marriage), but gain the benefit of marital exemption from gift or estate tax that usually requires the surviving spouse to obtain 100% title to the asset.

          4.       Credit Shelter Trust:  Allows for the first spouse to place the value of the estate tax exemption in Trust at death with the remaining sum passed tax free to the spouse.  After the death of the surviving spouse, the beneficiaries get the sheltered funds tax free plus the surviving spouse’s funds with a full exemption as opposed to the surviving spouse getting the whole estate and then passing on a large tax bill to the beneficiaries.

          5.       Qualified Personal Residence Trust or QPRT:  A QPRT Trust allows for the owner of a valuable residence to place their home in trust for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.  The grantor of the trust receives exclusive rent-free use, possession and enjoyment of the residence during the term of the QPRT and any tax deduction benefit for taxes they pay.  The benefit only works if the grantor outlives the term of the trust, when the property must be transferred to the beneficiaries.

          6.       Charitable Trusts:  These are irrevocable trusts that provide charitable benefits for the grantor and/or beneficiary. A Charitable Lead Trust gives the designated charity payments for a fixed term and at the end of the trust term, the remaining funds  go to the designated beneficiary tax free.  A Charitable Remainder Trust gives the trust funds to the charity subject to the charities’ obligation to pay the beneficiary income from the trust funds for up to twenty years with an income spread of not less than 5% or more than 50% of the initial fair market value of the trust’s assets

          7.       Special Needs Trust:  An irrevocable trust that allows the disabled beneficiary to enjoy the use of property that is held in the trust for his or her benefit, while at the same time allowing the beneficiary to receive essential needs-based government benefits such as Medicaid and Supplemental Security Income.

          8.       Irrevocable Asset Protection Trusts for Medicaid:  A specialized irrevocable trust created to allow the preservation of principal to prevent the loss for medical expenses that would otherwise be covered by Medicaid benefits.  The trust must be created and funded at least five years before applying for Medicaid benefits.  A child can usually serve as Trustee, and income from the trust can be paid to the grantor.

          9.       Spendthrift Trust:  A spendthrift trust is a type of trust (or a provision in a trust) that prevents the creditors of a trust reaching the beneficiary’s interest by forcing the Trustee to pay over the claimed sum.  This does not apply to federal and state taxes or an enforceable support order.

        Creation of an appropriate trust can result in substantial benefits to both the grantor and the beneficiary.  While estate taxes are not currently an issue today due to the high exemption (11 million for individuals, 22 million for couples), these exemptions can change so proper planning is still warranted.  Choosing the right attorney, financial planner and tax accountant can assist in creating the proper tools without wasting funds on unnecessary products.