Many of us dream of a second home. It may on the Jersey Shore, or on a lake, or in another part of the country. The current foreclosure mess has left many properties in desirable parts of the country available for what seems like very cheap prices. If your credit is good and you have enough money to carry two houses, it might be a good time for you to look for that dream house.
If you are looking for a second house as part vacation home, part investment, then you need to check out the local real estate market. Talk to the local real estate agents and find out how far prices have fallen. If you are thinking of renting out your house for part of the year, ask about how easy it is to rent to others and what the typical rental rate is for the size of house that you are looking at. Will the rental income cover the mortgage and taxes or just be a nice extra bit of cash?
Are you looking for a retirement home? In that case, your investigation will have a different focus. You will be concerned with the amenities that may come with the house, such as a pool, and with the amenities that the town or city that it is located in will provide, such as golf, other sports, cultural activities, good hospitals, closeness to an airport, and pleasant year-round climate. You may want to look for a 55+ adult community that provides activities and a clubhouse. You will also be looking for a house that will still be comfortable for you when you don’t want to take care of the lawn or walk up flights of steps every day.
Also think of how long you might want to stay in this house. If you think in terms of 5-10 years, you could be better off just renting. The costs of buying and selling, plus maintenance, make a house an expensive proposition over the short-term. Just think about how much cash you would pull out of your current house if you sold it now. Not that much if you bought it 5 years ago. You might even be taking a loss.
Mortgage loans for second homes are harder to get because the lenders know that you are not living there full-time. You are statistically more likely to default on a mortgage on a second home than on your primary residence. So, you need a very high FICO score and a lot of money in savings.
Just remember from an estate planning standpoint that if you own property in another state that you must probate that property in that state as well as your home state. There are techniques to get around this issue that your estate planning lawyer will know about.
Tuesday, February 24, 2009
Wednesday, February 18, 2009
Estate Planning If You Are Not Wealthy
You may not think you need to have a will. After all, you don’t think of yourself as wealthy. And you think you won’t need to pay any estate or death taxes (those are only for the rich, right?). And you’re fairly young and in good health, so you aren’t dying anytime soon. But you could be wrong – about all of your assumptions.
There are many reasons that people own their property in joint ownership. One of those reasons is so that the other owner automatically inherits upon your death - without needing a will. But, there are also reasons why that could be a bad idea. You may have accounts that can be “payable on death.” And for those accounts, you would not need a will. But, it is unlikely that everything you own is in joint ownership or a “payable on death” account. So, you need a will.
You probably have heard that you don’t pay “death taxes” or "estate taxes" unless you have an estate of more than $3.5 million. That $3.5 million is the federal estate tax exemption. So if you die and your estate is less than $3.5 million, then your family does not pay federal estate tax. But if your estate is more than $675,000, you will pay a death tax to New Jersey. And if you start counting the equity in your house, the balance in your retirement account, a life insurance policy that is not in a life insurance trust, and your stocks (even with the hit it took in the stock market these past few months), you might easily be past the $675,000 number. Do you want to pay estate taxes to New Jersey? So, you need a will.
Do you have minor-aged children? Do you want your relatives arguing over who should be the guardians of your children? Do you think that one of your relatives shouldn’t even be the guardian of your pets, much less your children? Do you know for sure that you will not die until the youngest child is over 18? So, you need a will.
Do you want your family hard-earned assets to be destroyed by your creditors, by an ex-spouse, by the stupid decisions of your college-aged kids, by your spouse re-marrying and giving your money and things to the new spouse? So, you need a will.
Of course the wealthy know that they need estate planning. And the majority of them spend the time and money to come up with a plan that leaves them with the peace of mind that comes from being in control as much as possible. They don’t leave things to chance. You may think you don’t need to act like them because you don’t have the same amount of money. But don’t you like the idea that you can leave things the way you want them, not to chance? Don’t you like the idea that your loved ones will be protected from bad luck and bad decisions? So, you need a will. Go call an estate lawyer. You’ll be glad you got a will.
There are many reasons that people own their property in joint ownership. One of those reasons is so that the other owner automatically inherits upon your death - without needing a will. But, there are also reasons why that could be a bad idea. You may have accounts that can be “payable on death.” And for those accounts, you would not need a will. But, it is unlikely that everything you own is in joint ownership or a “payable on death” account. So, you need a will.
You probably have heard that you don’t pay “death taxes” or "estate taxes" unless you have an estate of more than $3.5 million. That $3.5 million is the federal estate tax exemption. So if you die and your estate is less than $3.5 million, then your family does not pay federal estate tax. But if your estate is more than $675,000, you will pay a death tax to New Jersey. And if you start counting the equity in your house, the balance in your retirement account, a life insurance policy that is not in a life insurance trust, and your stocks (even with the hit it took in the stock market these past few months), you might easily be past the $675,000 number. Do you want to pay estate taxes to New Jersey? So, you need a will.
Do you have minor-aged children? Do you want your relatives arguing over who should be the guardians of your children? Do you think that one of your relatives shouldn’t even be the guardian of your pets, much less your children? Do you know for sure that you will not die until the youngest child is over 18? So, you need a will.
Do you want your family hard-earned assets to be destroyed by your creditors, by an ex-spouse, by the stupid decisions of your college-aged kids, by your spouse re-marrying and giving your money and things to the new spouse? So, you need a will.
Of course the wealthy know that they need estate planning. And the majority of them spend the time and money to come up with a plan that leaves them with the peace of mind that comes from being in control as much as possible. They don’t leave things to chance. You may think you don’t need to act like them because you don’t have the same amount of money. But don’t you like the idea that you can leave things the way you want them, not to chance? Don’t you like the idea that your loved ones will be protected from bad luck and bad decisions? So, you need a will. Go call an estate lawyer. You’ll be glad you got a will.
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