March 20, 2009

Representation, Part 2: Contingent Fee

I accept contingent fee cases in the probate context, in a couple of different situation:

1. Where a client wishes to contest the validity of a Will; or

2. Where a client has a potential claim against an estate.

In these cases, my fee -- instead of being charged hourly at $225 per hour -- is 30% of whatever I am able to collect from the estate for my client.

Is a contingent fee representation right for you? That's up to you to decide, just as it's up to me to decide whether such a representation makes sense for ME in any given case. The biggest "pitfall" to a contingent fee representation for the attorney is the risk that I perform hundreds of hours of work on your behalf, and receive nothing. The biggest pitfall for the client is that I settle the case quickly, and receive much more than I would have received if I had been paid hourly.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Practice Points

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March 19, 2009

Illinois Estate Tax Case

This is clever -- the Illinois Estate and Generation-Skipping Transfer Tax Act (35 ILCS 405/) requires the payment of tax equal to the "state tax credit." That's a defined term in Section 2(a) of the Act:

"State tax credit" means:
(a) For persons dying on or after January 1, 2003 and through December 31, 2005, an amount equal to the full credit calculable under Section 2011 or Section 2604 of the Internal Revenue Code as the credit would have been computed and allowed under the Internal Revenue Code as in effect on December 31, 2001....

The estate in this First District Court of Appeals case argued that no Illinois estate tax was due because it did not claim a credit under Section 2011 or Section 2604. Since no credit was "allowed," the state tax credit (and therefore, the Illinois estate tax) should be... zero. The court disagreed.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Estate Tax

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March 18, 2009

Representation, Part 1: Beneficiaries

In most probate cases, I represent the personal representative (executor or administrator). However, I'm seeing a big increase in the number of beneficiaries who want to hire me to represent them in connection with a probate estate.

Why would you, as a beneficiary, want an attorney? Just to make sure that your rights are protected, and that you understand the process. Keep in mind that, while the personal representative's attorney may owe you a fiduciary duty, you are not his or her client. So you may want to hire an attorney of your own, to review court papers and to monitor the progress of the estate. Doing so is NOT a slam on the personal representative -- it's just a way that you can protect your interests.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Practice Points

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March 17, 2009

Loans to Family Members, Part 2

Last week I mentioned the income tax problems associated with a loan to a family member. It is important to realize that market interest rates are determined by reference to what are known as "applicable federal rates" for short-term (3 years or less), mid-term (between 3 and 9 years) and long-term (more than 9 years) loans. What's amazing about our current climate is that these rates (published by the IRS each month) are incredibly low. In the loans to family members context, this means a couple of things:

1. It's easier than ever to make a "market" loan at an interest rate that is not at all burdensome to the borrower. For instance, the February 2009 short-term applicable federal rate was less than 1% -- it was 0.60%! (The March 2009 rate is almost as low -- it's 0.72%. See this page for more information.)

2. If you do want to make a below-market interest rate loan (or a no interest rate loan), the income tax and gift tax consequences will likely be minimal.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Income Tax

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March 12, 2009

The Oracle of Oak Park?

I know predictions are a fool's game, but I can't help but toot my own horn about this October 2005 post:

The Risky Business of Crazy Mortgages

Cybele Weisser has a scary article entitled "Crazy Loans: Is This How the Boom Ends?" in this month's Money magazine -- it's available online here. Speaking anecdotally, I've definitely noticed more and more homebuyers who are stretching to buy homes via "creative" financing. As Ms. Weisser points out, "crazy loans" could have a huge effect on those who hold them and on the economy as a whole.

What does Ms. Weisser mean by "crazy loans"? A few of the major types:

-Interest-only: For a set period of time at the beginning of the loan, the borrower pays only interest.

-Long-term fixed: Instead of the typical 30-year fixed mortgage, the mortgage is for 40 or 50 (or more) years.

-100% financed: The principal of the mortgage equals the purchase price (using one mortgage or a primary mortgage with a home equity line of credit).

-Flex-payment ARM: The borrower chooses what to pay each month, and may even pay less than the interest due (in which case this amount is added to principal).

If home prices continue to increase and interest rates stay low, most of these borrowers will be OK. But what if home prices don't increase and/or interest rates begin to rise?

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Real Estate - Lender and Mortgage Issues

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March 10, 2009

Loans to Family Members, Part 1

Want to make an estate planner cringe? Mention that you made a loan to a family member at a below-market interest rate (or, even better, a no interest loan). Why do estate planners hate this type of arrangement? The main reason is Internal Revenue Code Section 7872 (and the failure of most people to realize that these arrangements create income tax issues). That section imputes interest to a person who makes a loan at a below-market rate. For instance, if in January 2008 you made a $33,000 loan to your brother and his wife at 0%, Section 7872 would require us to:

1. Figure out the market interest rate for that loan. Assuming that the loan is considered short-term loan (less than 3 years), the January 2008 market rate would be 3.18%;

2. Deem you to have income equal to that amount (3.18% of $33,000, or $1,049.40); and

3. Deem you to have made a gift to your brother and his wife of the amount of deemed income ($1,049.40).

That's a lot of work for not a lot of money, isn't it?

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Gifts and Gift Tax

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March 9, 2009

The Estate Planning - Probate Connection

It's important for both the client and the estate planning attorney to think carefully about how bequests will work. Let me give an example: right now I'm dealing with a probate case involving a Will. The Will makes specific bequests to a number of individuals, many of them in foreign countries, in amounts ranging from $100 to $500 (most of the bequests are for $100). To say that this is an administrative hassle would be an understatement (especially since many of the specific beneficiaries cannot be located). If the attorney who drafted the Will had also been familiar with probate, he would have been able to advise the client on the problem with gifts of this sort, and offer alternative means for the testator's wishes to be satisfied.

Posted by Joel A. Schoenmeyer | | Email This Post

Posted In: Probate - Illinois Law

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Forest Park, Illinois
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