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Renovation Loans and Estate Planning

This week we were joined by John Markve from Markve & Zweifel as well as Larry Anderson and Matt Helling from Cambria Mortgage.  The first topic of conversation was about probate.  Probate is the process of clearing the title to assets that we don’t know what to do with.   Some assets are not probate assets such as life insurance policies or retirement plans.  They would have pay on death designations, so those would pay directly to the named beneficiary.   If there is no named beneficiary, such as real estate, then the assets go through probate because we are unsure what to do with it.   That’s the process of clearing the title, where a personal representative is appointed by the courts to administer the estate and then the personal representative collects those assets, sells the real estate, and then distributes according to the will.

Probate is a bit of a process so people often wonder how to avoid probate.  One way is to have a transfer on death deed.  These allow you to name a beneficiary that will take the property upon your death.  That document is revocable and it does not create invested interest in the beneficiary.  Transfer on death deeds are fairly inexpensive ways to make that transfer happen.  Another way to avoid probate is by setting up a revocable trust.  You can transfer your property to a revocable trust and then that separate entity owns the property.  Under the terms of the trust, there’s a provision that the grantor continues to get all of the property during his/her lifetime and then upon death, it steps onto phase two which means the beneficiary inherits all property.

We also touched on renovation loans, specifically the different kind of loan options.  With FHA you will hear the word 203k used a lot, which is the identifier of the FHA renovation project.  There are two types of these loans.  One is a streamline, which is like a cosmetic loan where it takes care of anything but structural type deficiencies on a property.  The other type is a standard, which is used to put an addition on a property.  When you are talking about conventional, there is the home-style loan.  This will allow for unlimited work or construction to be done on a property.  Home-style loans will allow you to buy a home, while simultaneously doing different levels of repair, upgrade, renovations, etc.  Historically, they are a bit complicated, but with the aging housing stack, there is a lot of demand for these loans.

The last half of the show brought out some great questions:

Jeff Zweifel:  Is there a refinance option for people that are in their home?

Larry Anderson: There is a refinance option.  Similar to the purchase transaction, you take the existing mortgage balance, ask them for the contractor bid, and roll it into one loan.  This gives you one loan, one closing, and one monthly payment.

Dan from Fridley: My brother passed and I’m the only living relative.  I was named personal representative by the court.  He had a long time girlfriend of 30 years and I want to take the assets from the estate, pay off the mortgage, and give the house to her.  Am I able to do this?

John Markve: You can make a gift to her, but there are gift tax implications to this.  You are limited to an annual exclusion gift of $14,000 a year, or you can use up some of your lifetime exclusion, which is one million dollars under Minnesota law and over five million under federal law, but then you have to file a gift tax return.  You could set something up with her to sell the property to her and forgive portions of it over a period of time.  You could also double your gifts with your spouse.

Text Question: Why not do a living trust versus a will and when would you not do it?

John Markve: The main reason not to would be the cost to set it up is more than a will.  If you are not going to stay in your house for more than a few years you may not want to incur the cost of setting up a trust, transferring the property into the trust, then to just turn around and transfer it out of the trust.  If you were ready to move to the south and sell your home, then a living trust would not be the better choice.

Mary from Minneapolis: We have a will done and we have one son who will get it all.  In case he would happen to divorce his wife, would she have any interest in anything he gets from us?

John Markve: Inherited money is a non-marital asset.  If you gave him real property such as a cabin and he and his wife use some of their marital assets to improve the cabin, then they’ve co-mingled the assets so then the spouse may have some interest.   If he wants to keep it separately then he should segregate the assets and not co-mingle the assets with his marital assets.


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