By Chris Watkins

These days, as many sellers are in a desperate struggle to sell their homes, and many potential buyers are having trouble qualifying for conventional mortgages (because of tougher loan underwriting policies), the result is that seller financing is on the rise.  One form of “seller financing” is the contract for deed.

WHAT IS A CONTRACT FOR DEED?

A Contract for Deed, sometimes referred to as a “land contract” or an “installment sale agreement,” is a form of seller-financing for real estate.  In a typical real estate transaction, the seller transfers title to the buyer (by signing and delivering a warranty deed), and the buyer finances the purchase by borrowing funds from a lender in exchange for a promissory note secured by a deed of trust (or a mortgage).   In some cases, instead of a third party lender getting involved, the seller acts as the “lender” and takes the promissory note and deed of trust.   In either case, title to the property transfers to the buyer at the closing.  If the buyer defaults on the loan, then the lender can foreclose on the property.

With a Contract for Deed, the buyer agrees to make payments to the seller over time, but does not take title until the purchase price is fully paid – often many years in the future (if ever).  If the buyer ever defaults, the seller has the option to take back possession of the property (foreclosure is not necessary because title was never conveyed), and the buyer is out all of the money paid up to that point.

Contracts for Deed are commonly used in situations in which the seller needs to quickly sell the property, but can find no buyer who can qualify for a conventional loan.  In many cases, the seller still owes money on the property and can no longer afford the mortgage payments, so he is looking to the buyer to provide the funds with which to make the monthly payments.  This is very risky, as discussed below.

WHAT ARE THE RISKS?

Whether you are the buyer or the seller, there are numerous risks involved with a contract for deed.

Buyers’ Risks:

• Homes sold through contracts for deed are often sold on an “as is” basis with little disclosure from the seller of defects in the property.  It is highly advisable for buyers to get a thorough inspection.
• If the seller has an existing mortgage/deed of trust on the property, the mortgage document will almost certainly have a “due on sale” clause that will be triggered by a contract for deed.  This means that, unless the lender consents to the contract for deed, the lender can declare the entire loan to be due immediately.  If you are not in a position to pay off the balance of the loan, the property could be foreclosed right out from under you, and you’d have little or no recourse.
• Another risk is that you do everything you are supposed to, and upon making the final payment, you discover that the seller is unable to deliver clean title to you (or any title). For example, there may be liens on the property from the seller’s creditors.  Or perhaps the seller divorces or dies, and various other parties claim ownership.  These are all problems that could require expensive litigation to sort out.
• It is very unlikely that a buyer will be able to get title insurance on the property, at least not until title is conveyed.
• The buyer has no equity in the home until it is fully paid off.  This means that even if you make payments religiously and on time for several years, but if you fall on hard times and fail to make a couple of payments, you could lose the house and all of the money you paid to the buyer.

Sellers’ Risks:

• One obvious risk is that the buyer in a contract for sale transaction is typically someone who could not qualify for a conventional loan.  There are all kinds of reasons why a buyer would not qualify for a loan (poor credit scores, little or no income, high debt, etc.), but they all mean that there is a pretty good risk that the buyer will default at some point.
• If the seller has a mortgage on the property and the buyer fails to make payments or if a “due on sale” clause is triggered, the seller’s lender/mortgage holder may accelerate the loan, thus forcing the seller to come up with funds to pay off the loan or risk foreclosure.
• If there is a fire or other casualty on the property, there may be a dispute about who is entitled to the insurance proceeds.  The seller needs to make sure his interest is insured.  Furthermore, the seller, whose name is on the title, could be forced to defend himself in a lawsuit if someone is injured or killed on the premises.

CONCLUSION

The risks associated with a contract for deed are great and neither buyers nor sellers should enter into such a transaction without careful consideration, and it is advisable for all parties to seek legal counsel.  Even if conventional financing is not an option, there are other alternatives that may be better, such as a simple lease or a lease with an option to purchase, or even seller financing in which the seller conveys title and takes back a promissory note and deed of trust.

By Chris Watkins

As the economy continues to struggle along, thousands of people find themselves getting deeper and deeper into debt-related financial problems – credit cards, mortgages, car loans, and the list goes on and on.  When debt piles up, inevitably you will find yourself having to deal with debt collectors, who sometimes can be rude, deceptive, and abusive.  This article discusses a law passed by Congress as a means to curb such unfair collection practices – the Fair Debt Collection Practices Act.

TO WHOM DOES THE FDCPA APPLY?

The FDCPA generally does not apply to creditors collecting debts owed to them (with the exception described below).  It applies only to “debt collectors” – people whose business is to collect debts for others.  The term “debt collector” also includes any creditor who, while trying to collect his own debts, uses another name to suggest that a third person is collecting or attempting to collect the debt.

Besides creditors collecting for themselves, who else is not considered a “debt collector”?  The law contains several exceptions, including (a) any officer or employee of a creditor who is collecting debts in the name of the creditor for the creditor; and (b) United States or State officials to the extent that collecting debt is in the performance of his official duties.

WHO DOES THE LAW PROTECT?

The FDCPA applies to “consumer debt.”  In other words, it only protects debtors who are natural persons (i.e., human beings, as opposed to business entities), and only with regard to debt that was incurred in a transaction primarily for personal, family, or household purposes.  So if the debt was incurred for a business, or if the debtor is a corporation, LLC, or some other entity, then the FDCPA does not apply.

HOW DOES THE LAW PROTECT DEBTORS?

There are numerous ways in which the law protects consumers from abusive or deceptive behavior from debt collectors.  Here are a few of the key protections:

• Debt collectors cannot harass, oppress, or abuse any person in connection with the collection of a debt.  This means, among other things, that they cannot use or threaten to use violence; use profane or abusive language; publish a list of people who refuse to pay their debts; and call people on the phone repeatedly with the intent to annoy, abuse, or harass them.
• Debt collectors may not use any false, deceptive, or misleading statements or conduct. This would include, for example, falsely implying that he is an attorney; stating or implying that failure to pay a debt could result in the arrest or imprisonment of the debtor; or threatening to take any action that is not intended to be taken, or that is illegal.
• A debt collector cannot call a debtor at any unusual or inconvenient time or place without the debtor’s consent.  Generally this means that they cannot call before 8:00 a.m. or after 9:00 p.m., and must not call you at your workplace if they have reason to know that your employer prohibits such calls.
• Communication with third parties about the debtor is heavily restricted – for the most part it is limited to seeking information about the debtor’s location, and in doing so the debt collector must follow strict guidelines, including not disclosing that the he is collecting a debt.
• Within five days after an initial communication with a consumer about a collection matter, the debt collector must send the consumer a written notice containing the amount of the debt, the name of the creditor, and a statement that if the consumer notifies the collector within 30 days that the debt is disputed, the collector will send to the consumer verification of the debt.  If, within the 30 day time period, the debtor disputes the debt or asks the collector to validate the debt or provide the identity of the original creditor, then the collector must cease collection efforts until the information is provided to the debtor.

WHAT ARE THE LEGAL REMEDIES FOR VIOLATIONS OF THE FDCPA?

Violation of the FDCPA by a debt collector gives the debtor a civil claim against the collector for: (1) actual damages sustained by the debtor; (2) such additional damages as may be allowed by the court, up to $1,000; and (3) the costs of bringing the action, including reasonable attorney’s fees.  The suit must be filed within one year from the date on which the violation occurs.   The Federal Trade Commission also has the power to enforce compliance with the FDCPA.

HOW CAN AN ATTORNEY HELP ME?

Retaining an attorney is a very effective way to get a debt collector to stop harassing you.  The FDCPA states that a debt collector cannot communicate with a consumer or anyone else (family members, co-workers, etc.) in connection with the collection of a debt if the debt collector knows that the consumer is represented by an attorney with respect to such debt (unless the attorney fails to respond within a reasonable period of time to a communication from the collector).  An attorney can also help facilitate a settlement and hopefully help you avoid a lawsuit.  And of course, if a collector violates the FDCPA, an attorney can help you file suit against the collector.

CONCLUSION

If you are being harassed by debt collectors, be aware that you may have some protections available to you under the FDCPA.  The FDCPA does not relieve you from the responsibility to pay your debts, but it can give you some relief from endless phone calls and other abusive behavior.  For more information, the Federal Trade Commission (the government body responsible for enforcing the FDCPA) has published a Debt Collection FAQ for consumers, or contact our office to set up an appointment.

By Chris Watkins

Limited Liability Companies have become extremely popular entity forms since their inception.  The primary reasons for this are their flexible structure and their liability/creditor protection aspects.  When most people think of the liability protection that LLCs provide, they are thinking about the protection enjoyed by the owners (or members) of the LLC from the LLC’s liabilities.  For example, if an LLC is sued for breach of contract or for damages caused by an employee of the LLC, the LLC’s owners are normally safe from being held personally liable.  A common exception to this is if an owner has personally guaranteed a debt (which commonly occurs when a business takes out a loan or enters into a lease). However, another equally beneficial characteristic of an LLC is the protection afforded to the LLC (and its assets) from the creditors of the owners, through what is known as a “Charging Order.”

The Charging Order

If a business owner has creditors or gets personally sued for some reason or another, and a judgment is entered against him, the judgment creditor often will start looking for assets to satisfy the judgment, and may seek to execute against the owner’s interest in the business.  From the point of view of the business owner and the business itself, the fear is that the creditor will, in the collection process, acquire the debtor/owner’s interest in the business and, in effect, step into his shoes.  Depending on the extent of the debtor/owner’s ownership interest and management rights in the business, the creditor will likely seek to dissolve the business and liquidate its assets.  In the case of a corporation, this is a real threat.  However, in the case of an LLC, the creditor’s only real remedy is to obtain a “charging order” against the debtor/owner’s interest in the LLC.  This is, in effect, a lien on the debtor/owner’s right to receive distributions.  However, a charging order does not give the creditor any voting or management rights in the LLC, so he cannot force a liquidation or even control when and to what extent distributions are made.

In conclusion, the limited liability company is an entity form that should always be considered by business owners who are concerned about protection not only from the creditors of the business, but also protection of the business from the creditors of the owners.

By Greg Jones
You are bound to have seen a number of companies with software and self-help online products allowing you to create your own Will.  First, let us thank these companies for highlighting that nearly every adult should have a Will — and, possibly, other estate planning documents.  We agree!  We also admit that the initial cost of using a “do-it-yourself” piece of software or an online service is less than the initial cost of utilizing the services of a licensed attorney — though usually not as much as they might lead you to believe.  With a background in economics, I understand that attorneys better add value to the process to justify the price difference.  I believe we do this in a number of ways:

1)    We are here in your community.  Discussion with one of us, someone who will come to know and care about you and your family, is only a phone call (or short drive) away.

2)    We have a full understanding of the terminology used in Wills, Trusts and Powers of Attorney, and we can explain the implications of including and excluding certain provisions.  After learning more about your family and your goals, we advise you on what we believe are the right choices for your family.  The do-it-yourself software and services are very clear in their disclaimers that they are “not a substitute for an attorney,” and that they are further “prohibited from providing any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options, selection of forms or strategies.”  (Click here for an example of where competent legal advice could have made a huge difference.)

3)    While no family is the same, we have likely dealt with family situations similar to yours.  Provisions that sound good while you are creating your own documents might have serious complications down the road—including family conflict, accidental disinheritance of a loved one, taxes unnecessarily being incurred, and friends & relatives contesting the validity of your Will.  Often times we can suggest alternative ways to help you accomplish your estate planning goals, yet avoid the potentially negative consequences.

4)    We drive the process to completion.  Many people buy estate planning software or intend to complete the online Wills, but get intimidated by the process or put it off until “tomorrow,” and it never gets done.  And, in those situations where the completion of your estate plan is an urgent matter due to an upcoming trip or surgery, we can often hold the meeting to sign your documents within a few days of our initial meeting.

5)    When/if something happens to you, we will already know your estate plan and be able to help your surviving spouse or other loved ones in carrying out the plan.

6)    We are constantly monitoring the changes in the law that could impact your estate planning, and we are available to answer any questions that you have as those laws or your personal/financial situation changes.

7)    We are with you at the time you sign the documents to ensure that all requisite formalities are followed.  These vary from state to state.

8)    We are accountable.  As the do-it-yourself services state, you are on your own when you use them. If you make an error in creating your documents that results in an unintended consequence, you and/or your loved ones will have no recourse against them—or anyone.

At Jones & Watkins, we offer an initial one hour consultation at no cost to discuss and assess your situation and advise you on your options.  At the end of that session, we will quote you a flat fee to draft and implement an estate plan that is appropriate for you.  We believe that the value we add to the process is well worth it.

Call us at 573.234.1130 or use our Contact Form to make an appointment or get our complimentary informational packet.

With few exceptions, almost everyone we meet with to discuss estate planning has one overriding goal if they should pass away unexpectedly – to make sure their children will be cared for. Oftentimes, we hear how people have taken their own “informal” measures to accomplish this goal. Unfortunately, such informal” measures can have unwanted and unexpected consequences.

One example is when a parent with young children names a sibling or other relative as the beneficiary of a life insurance policy, with the expectation that he or she will use the money to take care of the children. The reason for doing this is valid – children are not able to manage their own finances, particularly the large sums of money that are usually paid out under life insurance policies. However, although the intent is good, there are all kinds of reasons not to do this type of planning. Here are just a few examples:

1. There is no assurance that the life insurance beneficiary (the relative) will use the money for the child’s benefit in the manner that the parents envisioned. In fact, there is nothing to prevent the sibling from keeping the money all for himself or herself – he or she has no legal obligation to spend it on the child. If the relative wants to go blow it all at the gambling boat, there’s nothing to stop him.

2. The funds are subject to the debts and liabilities of the relative. If he or she has significant debts or gets sued for some reason, then the life insurance money could all be lost.

3. Since the funds are legally the property of the relative, the income that is generated from the funds (assuming they are invested) is taxable income to the relative, and could potentially push the relative into a higher tax bracket.

4. Even if the relative fully intends to spend the money on the children, he/she would have complete discretion as to how and when the money is spent, and this may not be what the parents would want. What’s to prevent the relative from buying the child a Ferrari when he turns 16, rather than spending it on college?

5. What if the relative has his own children? He may think it unfair that he be expected to spend the money on your children, but not his children. And of course, there’s nothing to stop him from spending it on his own family.

6. What if the relative gets a divorce? The insurance funds might be deemed marital property and end up in the hands of the ex-husband or ex-wife.

What’s A Better Solution?

As you can see, this kind of “informal” planning can lead to all kinds of unintended problems. Fortunately, there is a fairly simple way to accomplish your goal of making sure that the insurance funds are held for your kids benefit without all of the problems listed above – CREATE A TRUST AND MAKE IT THE BENEFICIARY OF YOUR LIFE INSURANCE.

You can create a trust for the benefit of your kids, which contains specific instructions as to how the trust funds will be managed and spent. You have practically unlimited say in how you want the money spent. Upon your death, your life insurance proceeds will be paid to the trust, and the trustee (whomever you designate to manage the trust) will have a fiduciary duty to the beneficiaries (your children) and will be legally obligated to follow the terms of the trust. Furthermore, if properly drafted, then as long as those funds are held in the trust, they will be protected from your children’s creditors.

By Greg Jones

About 70-80% of people give to charitable causes during their lifetime; however, only 7-8% include a provision for charity in their estate plans. Why is this? Frankly, I don’t believe the idea of supporting charity is often prompted by the attorney during the estate planning process. Lawyers generally have the goal of helping their client pass “as much as possible” to the next generation, and while there are tax incentives associated with making gifts to qualifying charities, you are almost never better off financially after making a gift to charity – the bite against your assets has just been lessened.

Many clients do want to maximize the amount given to children and grandchildren, but if you have supported a charitable cause during your life, don’t hesitate to tell your estate planning attorney that you want to provide for it in the event of your death, as well.

One simple way to give. For those who do want to make an estate gift to a charity, they often initially request just putting a flat dollar figure in their Last Will and Testament. STOP! There may be a better way. First, if you ever want to change this gift, you will have to go through the legal formalities & expense of creating and executing a codicil (or amendment) to your Will. This will require drafting the codicil, lining up witnesses and a notary, and signing the codicil in the same manner prescribed by Missouri law for signing a Will. The second reason to consider an alternative to making a charitable bequest in your Will is that there may a more tax-efficient way to do so.

Retirement assets are some of the most heavily-taxed assets when they are passed to the next generation. Consider, instead, naming your favored tax-exempt charity as the beneficiary of part or all of your retirement assets. Since these organizations will not pay taxes on the receipt of assets, they get the full value of your gift. In addition, if you have a change of heart about the charity, or if you wish to leave more or less to it, it is usually much easier to simply change the beneficiary designation on these retirement assets than it is to amend your Will.

If you would like a complimentary consultation on making charitable gifts in your estate planning – or on your estate planning, in general – please call one of the attorneys at Jones & Watkins at (573) 234-1130 or email us through our Contact Form.

By Greg Jones

Research abounds about the positive health benefits that are afforded by pet ownership—not just to the owner, but also to the animal.  In particular, the Research Center for Human-Animal Interaction at the University of Missouri is doing amazing work in this area.

Some of the individuals who benefit the most from human-animal interaction are seniors.  However, many of the seniors that I have encountered are reluctant to get pets.  They fear that they will outlive their beloved companion and that nobody will be there to adopt the animal and care for it in the manner to which they believe the pet deserves.  Sadly, those fears are well-founded.  In fact, it is estimated that approximately 500,000 pets per year are euthanized when their owners predecease them.  There is a legal solution to this, however.

In 2004, Missouri became one of nearly 40 states which specifically authorizes the creation of a trust for the care of an animal, see Mo. Rev. Stat. §456.4-408.  While it was always possible to create a trust to accomplish this, this statute provides a simplified answer to what is a very important concern for many people.  Of benefit, as well, it has generated greater awareness of pet trusts among the animal-owning public and the legal profession.

As one considers the creation of a pet trust or the inclusion of a bequest in their Will to someone who has agreed to adopt their animal(s), there are a number of questions which should be addressed.  These questions include: 

• Who will care for the pet?  What if something happens to this person?
• Should the caregiver be paid to provide such care?
• Should a separate individual or company be named to manage the pet’s “trust fund”?
• What is the appropriate standard of care for the animal?
• How large should the gift or trust fund be to ensure the animal’s proper care?  (While dogs live 10 to 15 years, parrots can live to be 100!)
• How will trust funds be distributed to the caregiver?  Monthly stipend?  Only as expenses are incurred?
• Who should receive any funds remaining in the trust after the pet’s death?  (In general, this should NOT be the caregiver, but, perhaps, a charitable organization that works in the area of animal health.)

In summary, it is important to work with an attorney versed in this budding area of the law to create the right plan—a plan which will ensure the proper care of Fido or Fluffy long after the owner’s death or disability.
For more information on this subject, please listen to my interview about pet trusts on The Law in Your Life, The Missouri Bar’s podcast for the public.

By Chris Watkins

The economic crisis we are facing is affecting millions of homeowners.  Many people are facing situations in which they can no longer afford their mortgage payments.  Perhaps they lost their job, or the interest rate on their adjustable rate mortgage has increased.  Whatever the reason, foreclosure rates are skyrocketing.  And to make things worse, property values are falling dramatically.  This means that for many people, their homes are worth significantly less than their mortgage balances.

If you are in a situation in which you can no longer afford your mortgage, and foreclosure is inevitable, you might want to consider a short sale.

WHAT IS A SHORT SALE?

A short sale is an arrangement with your lender whereby your lender consents to your selling your home for less than the balance of your mortgage.  It is, in effect, a negotiated settlement with the lender.  Often lenders will write off whatever debt remains after the sale.

HOW DOES A SHORT SALE BENEFIT A HOMEOWNER?

Whether a homeowner succumbs to foreclosure or negotiates a short sale, either way they are going to lose their home.  So why bother trying to negotiate a short sale?  There are several reasons:

• Deficiency.  A foreclosure can be an expensive process, and often leaves the debtor owing a substantial amount of money to the lender after the sale.  The debtor is liable to the lender for the deficiency, along with any costs incurred by the lender, including attorneys’ fees.  The lender can sue the debtor for these amounts and obtain a court judgment.  In a short sale, since it is a negotiated transaction with the lender, the amount of the deficiency is often forgiven.  This means that once the short sale is complete, the debtor can walk away with the comfort of knowing that his or her debt has been satisfied, and he or she will not be sued by the bank in a deficiency suit.
• Credit Score.  Whether you do a foreclosure or a short sale, your credit score (FICO score) is likely to take a massive hit.  Most experts, however, believe that a short sale is less harmful to your credit than a foreclosure.  Furthermore, with a short sale, it may be possible to negotiate with the lender how they will report you to the credit bureaus.  For example, the lender may agree to report that the debt was “paid as agreed” or something similar that would be less harmful than reporting “foreclosure” or “deficiency judgment.”

HOW DOES THE LENDER BENEFIT?

Lenders have no obligation to accept a short sale.  Once you default on your loan, it is entirely at the lender’s discretion as to whether or not to commence foreclosure proceedings (short of you filing for bankruptcy).  Banks, mortgage companies, and other lenders are businesses, and deciding whether to foreclose on a home or to accept a short sale is a business decision.  When a homeowner has defaulted on his or her mortgage, it usually becomes a matter of the bank cutting its losses.   So what are the reasons a bank would be willing to accept a short sale as opposed to a foreclosure?

• Lenders stand to lose more money in a foreclosure than in a short sale.  The reason is that there are a lot of expenses involved in a foreclosure (including legal fees and trustee fees).  Also, there is no guarantee that a buyer will show up at a foreclosure auction, and if they do show up, that they will make a good bid.  Although technically the debtor is liable to the lender for the costs of foreclosure, it can be hard to collect – people going through foreclosure usually don’t have sufficient assets with which to pay debts. 
• In many foreclosure sales, there are no buyers, and the lender ends up taking possession of the property.  Lenders want to avoid this for several reasons.  For one, they make no money on the property while in their possession.  Also, foreclosed properties are often in a state of bad disrepair, so lenders often have to spend a lot of money to get the property in a sellable condition, not to mention maintenance costs, utilities, insurance, and other such costs.  And of course, the lender will have to pay marketing costs (realtor commissions, etc.) to resell the property. 

WHAT DOES THE SHORT SALE PROCESS INVOLVE?

If you are in a situation in which you want to try to negotiate a short sale, then it is necessary to prove to your lender that your financial condition is so bad that you have no choice but to default on the mortgage.  This is usually accomplished by delivering a “hardship letter” to the lender, along with copies of bank statements, tax returns, W-2s, etc. 

You will also need to obtain an appraisal or market analysis so that you have a fairly accurate idea of the value of your property.  With that information, your real estate agent will have a good idea of what price to list the property.  The goal is to price the property high enough that your lender will be willing to sign off on the sale, yet low enough that you get quick offers.  The sales contract should say that the sale is “as is” and that it is contingent upon your lender’s approval. 

THE BENEFITS OF USING AN ATTORNEY IN THE SHORT SALE

There are several reasons to use an attorney when trying to negotiate a short sale:

• Unlike non-attorney organizations that provide short sale services, an attorney has a fiduciary duty to zealously act on your behalf, and is regulated by rules of professional conduct that apply to all attorneys.  These rules require attorneys to maintain strict confidentiality and to avoid conflicts of interest.  Furthermore, most attorneys are covered by malpractice insurance. 
• Attorneys generally have more training and experience in negotiations – particularly negotiating settlements in adversarial or semi-adversarial situations.  Remember, a short sale is, in effect, a settlement agreement with your lender.  Important negotiation points are (1) whether the bank will release you from further liability after the sale; (2) what the bank will report to the credit agencies; and (3) whether the bank will permit you to pay some or all of your expenses (such as realtor commissions and attorneys’ fees) from the proceeds of the closing.
• Lenders often will be more likely to take your matter seriously and devote more attention to it if they know you have hired an attorney. 
• If you have an attorney, lenders have a little more incentive to avoid foreclosure if a viable alternative (such as a short sale) exists.  The reason is that foreclosures have very specific notices and other procedures that must be followed to the letter – otherwise the foreclosure sale could be delayed or invalidated.  The bank knows that a good attorney will closely scrutinize the foreclosure process and look for reasons to invalidate it.

ARE THERE INCOME TAX IMPLICATIONS TO A SHORT SALE?

When a lender forgives a debt owed by a borrower, as is often the case in a short sale, there is an issue of whether that constitutes taxable income.  The general rule is the amount of debt discharged by a lender is included in the borrower’s gross income for federal tax purposes.  However, legislation passed in 2007, called the Mortgage Forgiveness Debt Relief Act of 2007, allows many debtors to exclude such income, provided that the mortgage covers their principal residence and borrowed funds were used to buy, build, or substantially improve the residence.  If the debt forgiveness does not qualify for exclusion on this basis, there are other grounds for exclusion that may apply.  For example, there is an “insolvency exclusion” that may apply to the extent a borrower was “insolvent” (i.e., liabilities exceeded value of assets) immediately before the discharge of indebtedness.

When indebtedness is forgiven, it will be necessary for the borrower to file IRS Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) with his or her federal tax return. 

CONCLUSION

If foreclosure is inevitable, and you are willing to move out of your home, then you should consider exploring whether a short sale would benefit you.

If you would like a complimentary consultation on the benefits of attorney representation through this process and of Jones & Watkins LLC to serve as Legal Counsel for your Short Sale call (573) 234-1130 or email us through our Contact Form.

By Chris Watkins

Many people put off preparing a Will, or think they have no need for one, because they think they are not wealthy enough, or that their assets will ultimately end up in the right hands if they do nothing.  The problem with this thinking is that such people are giving up the right to control what happens to their estate.  As explained below in more detail, this can lead to unintended consequences.

When a person dies without having a Last Will and Testament, it is known as dying “intestate.”  Every state has its own intestacy laws.  Missouri’s intestacy laws are found in Chapter 474 of the Missouri Revised Statutes.  What happens to the estate of a person who has died (this person is referred to as the “decedent”) depends upon whether there is a surviving spouse and/or children.  The basic rule is as follows (it gets more complicated if, for example, the decedent had a child who died before the decedent, but left grandchildren):
The surviving spouse gets:

• If there is a surviving spouse, but no surviving descendants (children, grandchildren, great-grandchildren, etc.), then the spouse receives the entire estate.
• If there are surviving descendants of the decedent, and they are also descendants of the surviving spouse, then the spouse receives the first $20,000 of the estate, plus one-half of the rest of the estate.
• If there are surviving descendants of the decedent who are not the surviving spouse’s descendants (for example, children from a prior marriage), then the surviving spouse receives one-half of the estate.

Whatever does not get distributed to the surviving spouse (or the entire estate if there is no surviving spouse) is distributed as follows:

• To the decedent’s children (or their descendants), in equal parts.
• If there are no surviving children (or other descendants), then the estate is divided equally among the decedent’s mother, father, brothers, and sisters.
• If none of the above people survive the decedent, then the estate is divided equally among the decedent’s grandparents, uncles and aunts (or their descendants).
• If none of the above people survive the decedent, then the estate goes to the decedent’s great-grandparents, and so on (obviously it is very rare to get this far).
• Ultimately, if there is no one alive to inherit the estate, then it will go to the State.

Missouri’s intestacy laws may work fine for some people.  But in a great many cases, the default rules are not what people would want.  The problem most often encountered involves families with minor children.  In the vast majority of cases, if a married couple has children, the desire is that if one of the spouses dies, then the other spouse would inherit the entire estate, and would then have those funds and other assets to take care of the children, as well as take care of him or herself.  However, if there is no Will providing for this, then the Probate Court would be forced to distribute half of the estate to the children.  If the children were minors, then a conservator would have to be appointed to receive the funds.  This is rarely ideal.  Furthermore, when the children reach age 18, then the funds would have to be distributed directly to the children.  It is very rare for young adults to have the maturity or ability to handle large sums of money.

Another issue has to do with who would be appointed take care of the children in the event that both parents died. The Probate Court is responsible for appointing this person (known as a “Guardian”), and must follow the wishes of the child’s parents as set forth in their Will, unless the Court finds that the person(s) designated to serve as Guardian(s) are unfit to do so.  In other words, if you do not have a Will designating who you would want to take care of your children, then the Probate Court will choose for you, and it may not be who you would want.

Summary:
In conclusion, do not assume you don’t need a Will just because you are not wealthy.  As explained above, failing to have a Will can result in unexpected and undesirable consequences to your surviving family members.

If you would like a complimentary consultation on the benefits and importance of attorney representation in the creation of a Will or Trust and of Jones & Watkins LLC to serve as Legal Counsel for your Will or Trust call (573) 234-1130 or email us through our Contact Form.