Baldassarre & Associates

10/22/2024

Buying a home may seem simple, but there are several pitfalls that most people are unaware of. Pitfalls that could cost you thousands of dollars if you are not careful. Always seek legal advice when making one of the biggest purchases of your life. Below is one unexcepted issue that most people overlook until it is too late.

Buying a home is often one of the most significant financial decisions a person makes. However, when considering a property with a history of insurance claims, potential buyers must be diligent in understanding the implications for obtaining homeowners insurance. This article explores the challenges and expenses associated with insuring a home that has had past insurance claims, along with some practical steps to mitigate these issues.

Understanding Homeowners Insurance
Homeowners insurance protects against various risks, including damage to the property and liability for injuries occurring on the premises. Insurance companies assess risk based on multiple factors, including the property's location, condition, and claims history. When a home has a history of insurance claims, insurers may view it as a higher risk, which can lead to increased premiums or even denial of coverage.

The Impact of Past Claims
Increased Premiums: Homes with a history of claims—whether for fire, water damage, or theft—often attract higher insurance premiums. Insurers may base their rates on the frequency and severity of past claims, resulting in costs that can be significantly higher than average.

Coverage Limitations: Insurers might impose stricter terms on policies for homes with a claims history. This could include higher deductibles, reduced coverage limits, or exclusions for certain types of damage.

Difficulty in Obtaining Coverage: Some insurers may refuse to cover homes with extensive claims history. This can limit your options and compel you to seek coverage from specialty insurers, which often charge even higher premiums.

Factors Influencing Insurance Costs
Several factors contribute to the overall expense of homeowners insurance for properties with past claims:

Type of Claims: Certain claims, like those related to mold or flooding, may raise red flags for insurers, resulting in even steeper price hikes or outright denials.

Time Elapsed Since Last Claim: If significant time has passed since the last claim and the property has been well maintained, some insurers may be willing to offer coverage at more reasonable rates.

Location and Property Type: Properties in disaster-prone areas, such as flood zones or regions susceptible to wildfires, will inherently have higher premiums, compounding the cost of homes with claims history.

Steps to Mitigate Insurance Costs
While purchasing a home with a history of claims can be daunting, several strategies can help manage and potentially reduce insurance costs:

Conduct a Thorough Inspection: Before purchasing, have the home professionally inspected. This can identify any issues that could lead to future claims and allow you to address them proactively.

Review Claims History: Obtain a Comprehensive Loss Underwriting Exchange (CLUE) report to review the property's claims history. Understanding the types of claims previously filed can help you anticipate potential insurance challenges.

Shop Around: Different insurers have different underwriting criteria. Comparing quotes from multiple companies may help you find a more favorable policy.

Consider a Higher Deductible: Opting for a higher deductible can lower your premium, but it also means you'll pay more out of pocket in the event of a claim. Evaluate your financial situation carefully.

Make Necessary Repairs: If the property has unresolved issues that contributed to past claims, addressing these before applying for insurance can improve your risk profile and potentially lead to lower premiums.

Seek Specialty Insurers: If standard insurers deny coverage, consider specialty insurers who focus on high-risk properties. While often more expensive, they may provide necessary coverage where others will not.

Conclusion
Purchasing a home with a history of insurance claims presents unique challenges, particularly regarding homeowners insurance costs. Understanding the implications of past claims and actively seeking ways to mitigate associated expenses is essential. By conducting thorough due diligence, making necessary repairs, and shopping around for the best coverage options, prospective homeowners can navigate the complexities of insuring their new property, ensuring they protect their investment while managing costs effectively.

10/16/2024

A word of advice if you are experiencing financial problems in these tough times, do not go it alone. As an attorney representing individuals and small businesses in the Seacoast and Merrimack Valley , many client's come to see me after they make critical mistakes about their debts. Mistakes that can cost your retirement, your home , your future. In many cases a skilled attorney can help you save your home, save your 401K, discharge your debts , get rid of second mortgages and liens, deal with the IRS and manage or get rid of many tax debts. Talk to a qualified attorney if you are in over your head. At Baldassarre & Associates we are here to help you make the choices to benefit you and your family.
It cost nothing to talk to us. (978) 465-5158.
seacoastlawyers.com

06/10/2024

Why add a trust to your estate plan?
Below are some reasons why.

1. Avoid Probate

Wills don’t avoid probate, a lengthy and costly court process. A trust bypasses probate, ensuring faster distribution. A Will, by itself, does NOT avoid probate!

2. Privacy:

Wills are filed in Court and are Public Record.
If set up properly, the terms of a trust are private.

3. Asset Protection:

A trust protects the legacy from creditors of the beneficiaries, provides protection in a divorce or bankruptcy of an heir.

3. Control :

Trusts allow you to specify how and when assets are distributed, protecting beneficiaries from poor life and financial decisions.

4. Flexibility and Customization:

Trusts can be drafted to meet unique needs, whether it’s protecting a blended family, a loved one with special needs or gifting to charity.

5. Protection from Massachusetts Estate Tax

Trusts can be used to save estate taxes.

02/15/2022

“The greatest victory is that which requires no battle.”
― Sun Tzu, The Art of War

02/08/2022

Many clients have asked me how to protect the family home in the event they have to go into a nursing home.
In some cases a life estate deed is a simple and very effective solution. Using a life estate deed as a way to protect real estate from long-term care costs has been a common planning technique for decades. A life estate deed typically works like this: parents sign a deed transferring their home to their children for nominal consideration (i.e. $1.00). The deed includes a provision stating that the parents “retain the right to use and occupy the property during their lifetimes,” a so-called “life estate” in the property. Upon the death of the parents, the life estate ceases to exist and the children own the property free and clear of any lien for long-term care costs.
There are some downsides to using a life estate deed which can be eliminated if the parent conveys the property to an irrevocable trust. This has made irrevocable trust planning very popular in the last several years. However, the recent attacks on the use of irrevocable trusts by MassHealth, the agency that administers the Medicaid program in Massachusetts, have caused elder law attorneys to revisit the use of the simple life estate deed.
Here are five consequences to be aware of when considering the transfer of your real estate with a retained life estate.
1. Five-year ineligibility period: The transfer is a gift under the Medicaid (MassHealth) rules and the parents will be ineligible for Medicaid benefits to pay for their long-term nursing home care costs for five years following the transfer. Under the current Medicaid rules, once the five-year ineligibility period has passed, the parents would be eligible for Medicaid benefits to pay for the cost of their care, assuming they otherwise meet the eligibility criteria.
2. The property will be subject to a lien for the life estate Medicaid benefits. It is important to understand that if the parent receives Medicaid benefits, whether in a nursing home or in the community, the Commonwealth will place a lien against the parent’s property. However, if the parent owns a life estate in the property, the Medicaid rules prevent the state from forcing the parent/life estate holder to sell the property during the parent’s lifetime. Upon the death of a Medicaid beneficiary, the state can collect the amount it paid out on behalf of the person from his probate estate. A person’s probate estate consists of assets in his individual name. Because the retained life estate disappears upon the death of the parent, it is not a probate asset and therefore the state cannot enforce its lien against the property under current law. It is important to understand that if the property is sold during the parent’s lifetime, the lien will have to be satisfied from the parent’s share of the sale proceeds.
3. Children’s creditors. If you transfer your home to your children, they will be the owners of the property even if you retain a life estate. That means your children’s creditors may be able to place a lien against your home for your children’s debts. However, when the parents have retained a life estate, the creditors of a child cannot force the sale of the property to satisfy a child’s debt. That is because a child’s creditors are not in any better position than the child. Since the child could not sell the property and force the parents out of the property, neither could a child’s creditor. The creditor will have to wait to enforce its claim until after the parents die. Having said that, parents need to know that a recent bankruptcy case resulted in the court ordering the sale of property owned by the debtor child, in which the still-living parent had a life estate. When the house was sold, the father received his share of the proceeds. However, since the value of a life estate is calculated based on the life expectancy of the life estate holder at the time of the sale, the value of the parent’s life estate decreases with every birthday. The end result of this case was that dad received a little bit of money when the house was sold, but had no place to live. Not to mention the asset could count against the child in the event of a divorce.
4. Stepped up basis/estate tax inclusion. A big advantage of retaining a life estate in property that is transferred: The full value of the property is taxable in the estate of the life estate holder at death for estate tax purposes. While it may seem counterintuitive to want assets to be included in the taxable estate, for Massachusetts estates valued at $1 million or less, this is actually a benefit. Under current law, assets that are included in a taxable estate receive a “stepped-up” basis at the owner’s death equal to the fair market value of the asset. For example, if I bought my house for $150,000 many years ago and it is now worth $400,000, upon the sale of the house during my lifetime there would be capital gain of $250,000 ($400,000 – $150,000). There is a rule in the tax law that allows a person who has owned and occupied a home for two out of the five years preceding the sale to exclude $250,000 of capital gain on the sale. I would not have to pay any capital gain tax, in most cases if I fall into this rule( seek advice before selling, to see if your situation fits with in this rule). If I gave my house to my children outright, without retaining a life estate, when my children sell the property they will be have to pay capital gain tax on $250,000 because the home is not their primary residence. But, if I retain a life estate in my home when I transfer it to my children, my house will be included in my taxable estate at my death and my children’s tax basis in the property will be the then current fair market value of the property. So if the property is worth $400,000 at my death, and my children sell it for $400,000, there will not be any gain, so no tax will be due. In this example, that means about $37,500.00 to $50,000 in tax savings.
5. Capital gain exclusion on sale of primary residence. As a general rule, you should not transfer your home to your children if you are planning on selling or refinancing the property. However, times change and sometimes property that was transferred to children needs to be sold during the parents’ lifetimes. It is important to understand that if this happens, there may be capital gain tax on the sale that would have been avoided if no transfer of the property to the children had been made. That is because the tax laws permit an individual to exclude up to $250,000 of capital gain on the sale of her primary residence, provided she has owned and occupied the property for two out of the five years preceding the sale. For a married couple, the exclusion is $500,000. However, if your children own an interest in your home and if they do not occupy the home as their principal residence, they will not be able to exclude the gain on their portion of the sale.
Another consequence to be aware of is that if the property is sold during the parent’s lifetime, the parent will be entitled to some (not all) of the proceeds. This is not necessarily a bad result, but if the parent is in a nursing home or about to go into a nursing home when the property is sold, a portion of the sale proceeds will be countable assets of the parent. The value of the parent’s life estate interest is calculated based on the age of the life estate holder and an interest rate mandated by the IRS. For example, In march 2017 the current value of a life estate held by a parent who is 80 years old is about 17.4% of the value of the property. If the property is sold for $400,000, the parent will receive 17.4% of the proceeds, or $69,600. If the parent is residing in a nursing home with Medicaid paying for the cost of care, then the receipt of $69,600 from the sale of his former home will cause him to become ineligible for Medicaid until those proceeds are spent down.
While transferring property with a retained life estate can be an excellent long-term care planning tool, there are significant consequences that property owners should understand before undertaking this planning. If you are wondering whether this type of planning would be good for your family, consult with an experienced elder law attorney to make sure you do not end up facing one or more unexpected outcomes.

11/24/2021

www.seacoastlawyers.com
A 1031 exchange can help you save taxes on the sale of investment real estate. Here is some guidance on the topic.
Ok, you are ready to sell an investment property, and make a big profit. Then you realize that the taxes from the sale will be enormous . There is a way real estate investors can defer paying any taxes on the sale of an investment property . This deferral can be for as long as the investor wants, even forever. This is a tax strategy called a “ 1031 exchange”, and it gets its name from Section 1031 of the U.S. Internal Revenue Code.
What is a 1031 exchange?
A 1031 exchange has special rules that allow you to avoid paying taxes when you sell an investment property; as long as you reinvest the proceeds from the sale within certain time limits in a property or properties of like kind at a price of equal or greater value. The basic idea is that if you did not actually receive any proceeds from the sale, then there isn’t any income to tax.
The taxes can be deferred indefinitely as long as no monetary benefit is ever received from the sale of a property. For example, if you complete a 1031 exchange, hold that property for a few years, and then sell it as long as you buy another investment property, you can continue to use this method to avoid paying taxes.
But it is not as easy as it seems. While a 1031 exchange can save a lot of money in taxes, the rules are complex .
What is the big deal about tax deferral you ask? My law school professor used to say “a tax deferred is a tax saved”. Here is how and why:
With the sale of an investment property you are saving two types of taxes:
First there is capital gains tax. Capital gains taxes apply if you sell an asset for more than you paid. For example, if you spent a total of $200,000 to acquire and fix up investment property and then you sell it for a net of $225,000.00 ( after broker fees, closing costs and certain other costs and fees), you have a $25,000 capital gain. If you held the property a year and a day, the gain would be considered long-term capital gain; which is taxed at 15%
( $3,7500.00 in taxes). If you held the property for a year or less, the gain is a short term capital gain and you have to pay whatever your ordinary income tax rate on this gain, which can be higher than 15%.
The second type of tax is known as depreciation recapture. Recapture is designed to offset the depreciation deductions investment property owners can claim each year. For residential rental properties, depreciation is taken over a 27.5-year period, so a $225,000 property would get about $8,182 in deductions on the rental income each year. This is great that you get to offset this amount every year from rental income. But, all of the cumulative depreciation deductions you’ve taken over time are considered taxable income once you sell.
Here’s an example. Let’s say that you bought a two- family house for investment for $200,000, 20 years ago. You just sold it for $300,000. Over your 20-year ownership period, you claimed $145,455 in depreciation deductions ( $7,273.00 per year) . We’ll say that you’re in the 24% tax bracket for 2020.
Your long-term capital gains rate is 15%, so you would owe $15,000 on the capital gains portion of the sale( 100,000.00 x .15). Depreciation recapture is taxable as ordinary income, which would add an additional $ 34,909.00 (145455 x .24) to your tax bill. In all, you’d have to pay $49,909.00 in taxes on the sale of the property !
Yikes! How does it work to save me taxes?
A Section 1031 has special rules that allow you to avoid paying taxes when you sell an investment property; as long as you reinvest the proceeds from the sale within certain time limits in a property or properties of like kind at a price of equal or greater value.
What is like kind?
According to the IRS, the property or properties you acquire in a 1031 exchange must be "the same nature or character" as the property you sell. You don’t need to buy the same exact type of property. A duplex doesn’t need to be "exchanged" for a duplex, an office property doesn’t need to be exchanged for an office property, and so on. You do need to acquire a property (known as the replacement property) that you intend to hold for investment.
In other words, you can’t sell an investment property, acquire a vacation home for you and your family, and call it a 1031 exchange. You can, however, sell a single-family rental home and acquire a retail building, as long as both assets are intended as investment properties. Or you can perhaps acquire --under certain circumstances --a single family vacation rental ( very special complex rules here).
Flippers Beware.
A property you intend to hold as an investment IS NOT a property you bought for the purpose of a quickly selling for a profit. While there are no specific guidelines when it comes to how long you need to hold a property for in order to use it in a 1031 exchange, the rule of thumb is that if you bought the property as a fix-and-flip, or you sold it shortly after you acquired it at a substantial profit, it is not likely to be a candidate for a 1031 exchange. This is one part of the 1031 exchange rules where you’re likely to run into some gray area, so be sure to consult a qualified tax professional if you’re unsure whether your property constitutes an "investment."
Can’t get rid of that Mortgage.
How much do you need to spend and borrow for a new 1031 exchange property?
If you want to completely avoid taxes with a 1031 exchange, there are two conditions you need to adhere to when it comes to the amount you spend on a new property.
First, the purchase price of your replacement property must be equal to or greater than the sale price of the property you sell. In other words, if you sell a property for $400,000, your replacement property must be purchased for at least this amount.
Second, if the original property you sell had a mortgage, you are required to use as much debt (or more) when financing the replacement property.
Combining these two rules, this means that if you sell a property for $300,000 and it has a $125,000 mortgage balance at the time of the sale, your replacement property must meet or exceed both of these numbers. A property you buy for $400,000 with a $200,000 mortgage would work. A property you buy for $400,000 in an all-cash deal would not qualify.
It is not and all or nothing proposition.
There is such a thing as a partial 1031 exchange. For example, if you sell an investment property and need to use some of the sale proceeds to cover your living expenses, you can still use the rest to acquire another property and defer some of your taxes. Here’s how this might work. Let’s say that you sell a $500,000 property and you have a $150,000 mortgage . You could take $100,000 of the sale proceeds yourself and acquire a replacement property for $400,000 and a $150,000 mortgage. The $100,000 you take from the transaction will be considered taxable income to you, and you may have to pay capital gains and depreciation recapture tax on this portion, but you can still defer some of your tax liability by purchasing a lower-cost replacement property.
There are strict time limits .
When completing a 1031 exchange, you can’t just sell one property and eventually acquire another. In order to complete an IRS-compliant 1031 exchange, there are two important time limits you need to keep in mind:
You’ll have 45 days from the sale of your original property to identify potential replacement properties. You can identify as many as three like-kind properties to buy, or as many as you want if the combined value doesn’t exceed 200% of the sale price of your original property. These properties must be identified in a written document and clearly described with the properties’ street addresses or legal descriptions, and this document must be delivered to your exchange facilitator (See below).
You have 180 days from the sale of the original property to close on the purchase of your replacement property or properties. This is when the entire exchange process needs to be completed.
Two points to clarify these rules: These timeframes refer to calendar days, not business days. And if there is more than one property involved in your 1031 exchange, the time clock starts when the first property is sold.
Delayed, Simultaneous or Reverse.
A standard 1031 exchange is one where you sell a property, find another you like, and then close on the purchase of the other property at a later date. This is also known as a delayed 1031 exchange. However, it’s not the only type possible.
A simultaneous 1031 exchange, where you sell one property and acquire another at the exact same time, is another option. For example, if two investment property owners both want to complete 1031 exchanges, it’s entirely possible for them to simultaneously swap deeds and have it count as a 1031 exchange. Or a third-party facilitator can set up a simultaneous exchange between buyers and sellers of properties.
You can also complete a 1031 exchange in reverse. For example, let’s say that you identify the investment property you want to buy before your original property sells. The timeline even works in the exact opposite manner. You’ll have a maximum of 45 days from the purchase of the new property to identify which property you want to sell, and as many as 180 days from the purchase to complete the sale and finalize the exchange.
Same Owners
The rules in most cases require that the owners of the original and replacement properties be the exact same person, group of people, or company. If the original property is titled to you alone, the replacement property must be owned by you. What this means is that if you own an investment property with partners, you generally cannot sell the property and use only your portion of the proceeds to complete a 1031 exchange.
Don’t Try This Alone
A 1031 exchange involves selling one property and then using the proceeds to purchase another. This may sound easy enough, but it’s important to realize that you can’t simply sell a property and buy a new one and call it a 1031 exchange. There’s a lot involved to completing a successful 1031 exchange that complies with the IRS rules. There are many traps for the unwary.
The IRS requires you to use an impartial third party to set up the exchange for you, known as an exchange facilitator. According to the IRS, your exchange facilitator can be a qualified intermediary or a "transferee, escrow holder, trustee, or other person that holds exchange funds for you in a deferred exchange under the terms of an escrow agreement, trust agreement, or exchange agreement. Seek the advice of an experienced attorney who works with a reputable and knowledgeable qualified intermediary.
Because it offers incredible returns and tax advantages, investing in real estate has always been one of the most effective way to create long term wealth. A properly executed 1031 exchange can help you achieve those goals. Do not go it alone, seek the advice of a qualified lawyer. At Baldassarre & Associates we are committed to help you realize your full potential.

Baldassarre and Associates advises and represents clients in the areas of bankruptcy, criminal and civil litigation, divorce and family law, personal injury, real estate, estate planning and probate law and business law. Located in Salisbury, MA.

01/02/2021

Susan and I would like to wish you and your family a happy, healthy and prosperous New Year. As we enter 2021, please know that whether there are calm or turbulent times ahead, we are always here to help you with all of your legal needs, whether business or estate planning, real estate or family law, personal injury, bankruptcy or litigation we are here to help you and your family succeed in 2021 and beyond.

seacoastlawyers.com

11/11/2020

THE MASSACHUSETTS UPPER MIDDLECLASS TAX TRAP-- THE MASSACHUSETTS ESTATE TAX.

Beware. One very important thing often gets overlooked when doing an estate plan in Massachusetts is the Massachusetts Estate Tax. The threshold for taxing estates in Massachusetts is $1 million, much less than the $11.58 million threshold for federal estate taxes for 2020. Not many people are lucky enough to have to worry about the Federal Estate Tax; but in these days of high real property values many people are surprised that they fall into the $1,000,000.00 threshold. What is counted toward that 1 million -- virtually everything and virtually all of your assets, your house, life insurance , bank accounts investment accounts, 401K and retirement accounts all count if not managed properly.

And the Estate tax can be significant. Here are the Massachusetts estate tax rates:
Estate Size Tax Rate
$40,001 - $90,000 0.8%
$90,001 - $140,000 1.6%
$140,001 - $240,000 2.4%
$240,001 - $440,000 3.2%
$440,001 - $640,000 4.0%
$640,001 - $840,000 4.8%
$840,001 - $1,040,000 5.6%
$1,040,001 - $1,540,000 6.4%
$1,540,001 - $2,040,000 7.2%
$2,040,001 - $2,540,000 8.0%
$2,540,000 - $3,040,000 8.8%
$3,040,001 - $3,540,000 9.6%
$3,540,001 - $4,040,000 10.4%
$4,040,001 - $5,040,000 11.2%
$5,040,001 - $6,040,000 12.0%
$6,040,001 - $7,040,000 12.8%
$7,040,001 - $8,040,000 13.6%
$8,040,001 - $9,040,000 14.4%
$9,040,001 - $10,040,000 15.2%
Above $10,040,000 16.0%
HERE ARE SOME EXAMPLES:
The Massachusetts Estate Tax difference between a $1,000,000 estate and $995,000.00 is about $36,500. If the Taxable estate is even slightly larger the difference in taxes can be tremendous. A
$ 1,200,000.00 estate would be taxed by Massachusetts at about $50,000.00 . Yikes !
A misconception many people have is that just avoiding probate avoids estate taxes. That is not true at all , and as you can see, reliance on misconceptions can cause substantial taxes. The gross estate for estate taxes consists of the value of all property (real or personal, tangible or intangible) owned by a decedent or in which the decedent had any interest at the time of death. This includes but is not limited to joint accounts, stocks, bonds, mutual funds, most life insurance policies, IRA, pension, 401K , other retirement accounts interests in small businesses and real estate.
With real estate and stock values as they are today, many people reach this threshold without even being aware that their estates will be taxed. Fortunately, any assets that pass to your spouse are subject to "special rules" called the unlimited marital deduction and escape estate tax. But much of your planning opportunity is lost after one spouse passes away. There are ways to take advantage of the marital deduction to shelter up to $ 2,000,000.00 in assets from Massachusetts Estate Tax .
At Baldassarre & Associates we are committed to helping you achieve your goals for you, your business and your family.

11/04/2020

Buyer Beware of Buying a House with Unpermitted Additions
Homeowners frequently remodel, upgrade, or otherwise make additions and changes in their homes for which they do not secure a permit. While some changes do not require permitting, many others do.

You may run into a big problem when a you purchase a home, and you later discover construction changes were made in the past without a permit or the town building department notifies you that there is an open building permit that was never officially inspected and “signed off” for past construction. Even if the upgrade occurred before you purchased the property, you might be the one responsible for fixing it with your town. This could be a very expensive oversight .

Additionally, since building codes often change from year to year and certainly from decade to decade, and the property may have changed hands more than once before it came to you. The cost may be significant and you would have to comply with the updated and more rigorous and expensive modern building code when curing the issue.

Here are some examples: unpermitted in law apartments, or a second kitchen added in the basement or a bathroom addition, a sun room a pergola or the like all could present a problem, if they were constructed without a building permit.

Advice for the Buyer, when you make an offer on a home check--with the building department in the town where the house is located and look in file for the property . You can see if there were any building permits issued and what construction has been done by looking at the “building jacket” .

Also, hire a good lawyer to prepare your purchase and sale agreement. The standard purchase and sale agreement your real estate broker has you sign does not deal with this issue ( and many other potentially expensive issues) and you could be stuck with an expensive problem.

At Baldassarre & Associates we are here to help guide you through the complexities of today’s world and help you make the decisions that are right for you and your family. It cost nothing to speak with us. (978) 465-5158

seacoastlawyers.com