Nebraska Used Car Lemon Law Tips

Sergei Lemberg, an attorney specializing in lemon law [link: http://www.lemonjustice.com/ftc_used_car_rule.php], is sitting in the guest blogger’s chair today. He’s outlining some of the ways that consumers with used car lemons can get justice.

I don’t know anyone who doesn’t feel at least a little bit of trepidation when they buy a used car. Always lurking in the back of your mind is the thought that you might just be buying someone else’s troubles. Unfortunately, although every state in the nation has a new car lemon law, few states have lemon laws covering defective used cars. That doesn’t mean that all is lost, however. There are a number of other ways consumers can take action if they find they’ve purchased a lemon.

The “New” Used Car – Some states’ lemon laws (but not Nebraska’s, unfortunately) include newer used cars in their lemon laws. So, for example, if the used car is purchased while the original manufacturer’s warranty is still in effect, the car is covered by the lemon law. The drawback is that the window of opportunity for pursuing a lemon law claim is fairly short, in that action needs to be taken within a timeframe that starts from the delivery date to the vehicle’s original owner.

Magnuson-Moss Warranty Act – The federal Magnuson-Moss Warranty Act typically covers written or implied warranties, as well as service contracts.

FTC Used Car Rule – The Federal Trade Commission requires dealers to post a Buyer’s Guide in every used car. It becomes part of the sales contract and overrides conflicting provisions in the sales contract. If the dealer doesn’t abide by the Used Car Rule, there can be cause of action.

Warrant of Merchantability – If there are fundamental problems with the used car, consumers can claim that the warrant of merchantability was breached. Unfortunately, though, the burden of proof is on the consumer to prove that the defect was present at the time of sale.

Express Warranties – Again, newer used cars may be covered by manufacturer’s express warranties, as well as verbal representations made by a salesperson or in advertisements.

UDAP – If the dealer has failed to disclose information about the vehicle, or is guilty of verbal deception, Unfair and Deceptive Acts and Practices laws can be used on behalf of consumers – even if the used car is sold “as is.”

MEDICAID IN GENERAL

I. Introduction.

This memorandum is intended to give the readers a brief understanding of Medicaid law and how it applies to the elderly. Because the laws and regulations governing Medicaid are ever changing, the readers should discuss their specific situation with their attorney before relying on the information contained herein.

Medicaid is a state and federally funded program administered by the Nebraska Department of Social Services which is designed to pay the cost of nursing home care for an elderly patient when they are unable to financially afford nursing home care. As the cost of nursing home care can run between $5,000.00 and $7,000.00 per month, there are many elderly individuals who are unable to afford this cost yet do require the supervision and assisted living arrangements that a nursing home provides. In this situation, the Department of Social Services, as the administrator of Medicaid, will investigate the elderly person's assets and determine if they have insufficient funds in which to provide for nursing home care. There are certain assets that the elderly person may have and that the Department of Social Services will not consider when determining whether the elderly person has insufficient assets in which to pay for their nursing home care. The assets that are not included will be discussed later in this memorandum. In addition if the elderly person has a spouse that does not need nursing home care, some of the assets and income of the non-nursing home spouse will not be considered in determining whether the spouse to be placed in the nursing home qualifies for Medicaid. These assets and their amounts will also be discussed later in this memorandum.

If an elderly person does qualify for assistance from the Medicaid program, generally his or her income or social security benefits will be paid directly to the nursing home. The remainder owed to the nursing home for nursing home care will be paid by Medicaid. The elderly person in the nursing home is
reserved $40.00 per month out of his or her income as a "spending allowance".



II. How Does One Qualify For Medicaid?

There are three elements that a person must meet before they can qualify for Medicaid and thus, have their nursing home care paid, in part, by state and federal funding. The first element involves status issues, the second element involves resources, and the third element involves income.

A. General Status Requirements.

1. The applicant for Medicaid assistance must be a
United States citizen.

2. The applicant must be a Nebraska resident. A
resident is defined as an individual living in
this state voluntary with the intent of making
Nebraska his or her home.

3. The applicant for Medicaid may not reside in a
public institution such as a regional center or
any Veterans Administration facility.

4. The applicant for Medicaid must not have deprived
him or herself of resources or income in violation
of Medicaid program rules. This topic will be
discussed below under III (Transfer of Assets).

5. The nursing home facility that the applicant
intends to reside in or has been residing in must
be certified by the Medicaid program.

6. The applicant must be age 65 or older, or if the
applicant is age 65 or younger, they must be
disabled or blind.



B. Resource Guidelines.

1. At the time the person applies for Medicaid
assistance, their total resources must be less
than the following:

(a) Single person - $4,000.00.

(b) Married couple who applies for Medicaid
for both spouses at the same time - $6,000.00


(c) Married couple who apply under the "Spousal
Impoverishment Program":

i. If the total amount of their assets is
less than $18,552.00; the non-nursing home
spouse may keep the entire amount plus
$4,000.00 for the spouse who is entering
the nursing home and applying for
Medicaid.


ii. If the total amount of both spouse's
property exceeds $18,552.00. The spouse
who is not entering into the nursing home
may retain one-half of said assets so
long as that one-half portion does not
exceed $92,760.00. Any amount beyond
$92,760.00 and the remaining half of the
total assets must be applied towards the
spouse's nursing home costs before
Medicaid will begin paying for said
spouse's nursing home costs.

2. It is very important to note that under Medicaid regulations, certain assets and their values are completely excluded from consideration as a resource in the formula outlined in paragraph 1 above. The following resources are excluded in making a determination of whether a person is eligible for Medicaid:

(a) Real property occupied as a home if the person
applying for Medicaid, his or her spouse, or a
dependent of the person applying for Medicaid
resides in the house. The house is also
excluded as a resource if the individual
entering into the nursing home plans on
returning back to the house within six months
of entering into the nursing home.

(b) Household goods and personal effects of a
moderate value used in the home. For example,
paintings by a Master would not be excluded
as a resource while a piece of antique
furniture in daily use at the home would be
excluded.

(c) One motor vehicle per person or per married
couple. A single person who is entering into
a nursing home must demonstrate that the car
is needed for employment or medical transpor-
tation. However, if one spouse enters the
nursing home, the non-nursing home spouse
may keep one motor vehicle regardless of its
intended use.

(d) An irrevocable burial trust for each person
funded with a maximum amount of $3,000.00
per person or $3,000.00 in burial insurance,
or $1,500.00 designated for burial either in
an account or in an insurance policy.

(e) $1,500.00 combined original cash value of
life insurance for each person.

(f) Business equipment, fixtures, or machinery
which is being used in a trade or business.

(g) Life estates in real property. However, any
income generated by the life estate must be
used to pay a portion of the nursing home
care.

(h) Land contracts which cannot be sold. For
example, if a Medicaid applicant has
privately sold land on contract to a third
party in return for $400.00 a month payments,
the $400.00 a month payment will go towards
the applicant's nursing home care, however,
the land will not have to be sold.

(i) A trailer or mobile home occupied as a home.

(j) There are other miscellaneous excluded
resources which are listed under HHS 496 NAC
2-009.02B as well as other regulations dealing with Medicaid.

C. Income Requirements.

1. Individuals in long-term care facilities:

Each individual is allowed to retain $40.00 per month of his/her income for personal needs. The remainder of his/her income is paid to the care facility. Medicaid will pick up the remaining balance of the nursing home care.

2. Married couples who have completed the spousal impoverishment process:

The community spouse (spouse who does not require Medicaid assistance or nursing home care) may retain all income which comes in his or her name regardless of the amount. If the community spouse's income is less than $1,254.00 per month, income from the spouse who requires Medicaid assistance is given to the community spouse to bring the community spouse's income to as close to $1,254.00 per month as possible. If the community spouse has a mortgage payment or pays rent, a formula is used which could raise the community spouse's income to as high as $1,918.00 per month.

III. Transfer of Assets.

So far we have discussed the eligibility, income, and asset criteria that a person must meet at the time they apply for nursing home assistance through the Medicaid program. If these were the only items that the Department of Social Services looked for as the administrator's of the Medicaid program, then it would be very easy for someone to qualify for Medicaid. All a person would have to do is transfer or gift out all their assets a week or two before they go into the nursing home and apply for Medicaid. Presumably, if they had nothing left, Medicaid would pick up the cost of the nursing home care. However, as with many government programs, it is not that easy. Medicaid laws and regulations are designed to disqualify someone who transfers assets that could have been used to pay their nursing home care. Therefore, certain transfers by a person which were made before such person applies for Medicaid may make that person ineligible for Medicaid and, therefore, that person must pay for their nursing home care without any state or federal assistance. The transfer that makes a person ineligible for Medicaid is called a "deprivation of a resource".

A. Rule Regarding Deprivation of a Resource.

A person applying for Medicaid will be ineligible
for assistance if he or she disposed of a resource for less than fair market value within 60 months (five years) of the date that person applied for Medicaid (look back period).


B. Period of Ineligibility.

If a deprivation of a resource occurred within the period of above-described, the individual intending to reside in the nursing home will be ineligible for Medicaid for a number of months depending upon the value of the resource that was transferred. The Department of Social Services will determine the value of the resource that was transferred and the divide that by the actual monthly cost of care in a nursing home at a private pay rate. That result will be the number of months that the individual will be ineligible for Medicaid beginning with the month that the person filed the application for assistance. For example, if an elderly widow gave her house to her son on June 1, 2005, and at the time of the transfer the house was worth $100,000.00, the private pay rate of nursing home care is $5,000.00 a month. The elderly widow applies for Medicaid on February 1, 2008. The elderly widow will be ineligible for Medicaid assistance in her nursing home care costs for 20 months after February 1, 2008

In the above example, if the elderly widow had transferred her home to her son on or before February 1, 2000, the transfer would not be considered a deprivation of resource and the elderly widow would more than likely qualify for Medicaid. This is because the transfer did not occur within the 60 month look back period from the time that the elderly widow applied for Medicaid in February of 2008.

C. Transfers Not Considered a Deprivation of Resource.

It is not considered a deprivation of a resource if:

1. The individual applying for Medicaid
transfers an asset to a trust established
solely for the benefit of the individual's
son or daughter who is blind or disabled.

2. The individual applying for Medicaid
transfers an asset to his or her spouse
under the spousal impoverishment regulations
(outlined below).

3. The individual transfers an asset to a
resource that is excluded, such as an
irrevocable burial trust, life insurance,
or other excluded assets indicated under
III B.

IV. Spousal Impoverishment Program.

The spousal improverishment program deals with a situation where one spouse requires Medicaid assistance in a nursing home and the other spouse does not. This situation will arise when
one of the spouses in the marriage requires nursing home care while the other spouse does not.

(a) If the combined assets (less the excluded
assets as previously described in this memorandum)
of both spouses are less than $19,348.00, the
spouse requiring the nursing home care is
eligible for Medicaid without reduction of assets.
However, if the combined assets are in excess of
$19,348.00, some of the assets must be reduced
or transferred as outlined below.

(b) If the combined assets are more than $19,348.00,
and less than $153,480.00, the Department of
Social Services as the administrator of the
Medicaid program will do an assessment of the
resources of the married couple during the month
the nursing home spouse enters the nursing home.
The non-nursing home spouse will be entitled to
retain one-half of the combined equity value of
all assets (including the excluded assets as
previously discussed) so long as that one-half
does not exceed $76,740.00. The remaining
one-half of the married couple's assets will
be used to pay the nursing home spouse's care.
Once the remaining one-half of the assets have
been dried up, Medicaid will begin paying for
the nursing home spouse's care.

In the above situation, after the application for
Medicaid is received, the non-nursing home spouse
will be given 90 days to transfer the
aforementioned assets in his or her name and out
of the name of the nursing home spouse.

NOTE: The married couple's family home in the
above situation is not considered an asset and
is excluded so long as the non-nursing home
spouse continues to stay there. Title to the
family home may remain in joint tenancy. However,
it may be a good idea to title the family home
in the non-nursing home spouse's name because
if the home is later sold while it is in joint
tenancy, one-half of the value realized after
the sale will become an asset of the nursing
home spouse and must be applied towards his or
her nursing home care.

NOTE II: The non-nursing home spouse may retain
all income which comes in his or her name
regardless of the amount. In addition, if
the non-nursing home spouse's income is less
than $1,254.00, the non-nursing home spouse
is entitled to the income received by the
nursing home spouse in order to bring his
or her income to the level of $1,254.00. If
the non-nursing home spouse has a mortgage
payment or pays rent, a forumla is used
which could raise the non-nursing home spouse's
income to as high as $1,918.00 per month when
adding in the nursing home spouse's income.



FINAL NOTE: As Medicaid law is always changing, it is very important to seek the advice of an elder law attorney before relying upon anything in this memorandum. This memorandum is not intended to give legal advice.

MEDICAID AND OWNERSHIP

This memorandum is intended to supplement the previous memorandum entitled "Medicaid Law and The Elderly". Before reviewing this memorandum, I would suggest that the reader review the general principles of Medicaid law in the memorandum entitled "Medicaid Law And The Elderly".

You will recall that a person may qualify for Medicaid assistance in the payment of their nursing home care if they have a total amount of resources which are less than $4,000.00 for a single person. (See Medicaid Law And The Elderly II B 1). You will also recall that certain resources are excluded from consideration when determining this $4,000.00 amount (See Medicaid Law And The Elderly II B 2).

I. Determining Who Owns The Asset.

The applicant for Medicaid assistance must have less than $4,000.00 in assets (less the excluded assets which are not considered) in order to qualify for Medicaid. The Department of Social Services, as the administrator of the Medicaid program, will look at the title or wording on the ownership of the asset in determining whether or not that asset will be included in the $4,000.00 limit. The following examples help to illustrate how the title to an asset for a legal contract may be important:

A. Jointly Owned Resources.

As a general rule, the words "and/or" or "or" appearing on a title or other legal contract denotes joint tenancy ownership. This means that either owner could sign and turn the asset to cash without the other's consent. Therefore, the total asset is considered available to either owner and if one of the owners is applying for Medicaid, the total value of the asset will be attributable toward him or her when determining whether he or she meets the resource guidelines.

B. Tenancy In Common.

The word "and" appearing on a title or other legal contract refers to "tenancy in common". This means that each
owner holds an undivided interest in the resource without rights of survivorship to the other owners. Only the proportionate share based upon the number of owners of the asset is available to each owner.

C. Payable On Death Or Beneficiary.

An asset that is titled or a legal contract that lists a beneficiary or a person that the asset is to be paid to upon the death of the owner will be considered the sole asset of the owner.

NOTE: In joint ownership and tenancy in common
ownership cases, the applicant for Medicaid may
prove to the Department of Social Services that
he or she is not the true owner of the asset, and,
the Department of Social Services will allow the
applicant to remove his or her name from the title
of ownership in order to reflect the true ownership.

Examples.

1. John Smith, a widower, titles a CD in his name and his son's name, jointly, with right of survivorship. Ten years later, the CD, now worth $30,000.00, is the only asset that John Smith has. Under Medicaid law, $26,000.00 of the $30,000.00 CD must be used to pay for John Smith's nursing home care before Medicaid will assist in the payment.

2. Assume the same example as number one above, however, John Smith titles the CD in his name "and" his son's name as "tenants in common". In that situation, John Smith will only have to apply $11,000.00 of that CD toward his nursing home care ($15,000.00 or one-half less $4,000.00 in excluded assets) before Medicaid will begin payment on his nursing home care.

3. Assume the same example as number one above, however, John Smith's son is the one that set up the CD. In this situation, John Smith would prove to the Department of Social Services that he did not contribute any money to the CD and he is not the "true owner". If John Smith is successful, his name will have to be removed from the CD and then he will qualify for Medicaid assistance in the payment of his nursing home care.

II. The Treatment Of Various Investment Vehicles Under Medicaid
Law.

A. Certificate of Deposit.

The entire amount of a certificate of deposit will be included as a resource in determining whether or not a person
will qualify for Medicaid. This is true regardless whether there are penalties for early withdrawal.

B. Mutual Fund.

The entire amount of the mutual fund will be included as a resource in determining whether or not a person qualifies for Medicaid. This is true even though there may be some penalty for early withdrawal of the mutual fund.

C. Stocks.

The entire amount of the stocks will be included as a resource in determining whether or not a person will qualify for Medicaid.

D. Life Insurance.

Term insurance is not included as an asset in determining whether someone qualifies for Medicaid. This is true because there is not "cash value" to a term insurance policy. However, the cash value of a "whole" or "investment" life insurance policy will be considered as a resource when determining whether or not a person qualifies for Medicaid. This is true because most (whole or investment) life insurance policies have a "cash value".

E. Variable Annuity.

The cash value of a variable annuity will be considered a resource when determining whether or not a person qualifies for Medicaid. This is true because at any point during the term of the annuity the annuitant may withdraw a portion or all of the funds that were placed in the annuity.

F. Fixed Annuity.

There are basically two types of fixed annuities available to an investor. The first type of fixed annuity is set up on a deferred basis and still has cash value sometimes called a single premium deferred annuity (SPDA). The second type of fixed annuity is immediately annuitized or paid out on an immediate systematic or monthly basis or any annuity contract that guarantees the payment to an annuitant of a sum certain for the remainder of his or her life. This type of investment is sometimes called an immediate annuity contract. The following discussion deals with how Medicaid law applies to these two types of fixed annuities:

1. A fixed annuity that is set up on a deferred basis and has cash value to the investor, sometimes referred to as a
single premium deferred annuity (SPDA), will be considered as a resource when determining whether or not a person qualifies for Medicaid. This type of annuity arrangement is similar to a certificate of deposit in that a lump sum is invested and earns interest over a time certain and no systematic payments are made to the investor pursuant to the annuity contract until that time certain expires. The reason this type of annuity is considered as a resource under Medicaid law is that the annuity has a "cash value" to the investor during the term of the annuity contract.

2. On the other hand, a fixed annuity in which a lump sum is invested that is immediately annuitized or paid out on an immediate systematic or monthly basis or any other immediate annuity contract that guarantees the payment to the annuitant of a sum certain for the remainder of his or her life, will not be considered an asset when determining whether or not a person qualifies for Medicaid**. This is true because under the annuity contract, the annuitant may not withdraw more than the fixed amount that he or she is entitled to. This type of investment vehicle is also called fully "annuitizing" an asset. This type of annuity has no real cash value to the investor which allows the investor to withdraw his or her initial investment with interest during the term of the annuity contract.

Concerning this type of immediate fixed annuity arrangement, it is very important to note that any payments made from the annuity while the person is in the nursing home care and while the person is being assisted by Medicaid will have to be assigned directly to the nursing home for the payment of that person's nursing home care. Any remaining amount owed will be paid by Medicaid. However, if the Medicaid recipient is married, and the annuity is owned by the non-nursing home spouse, the non-nursing home spouse will be entitled to 100% of the income received from the annuity.

**The Wisconsin Department of Health recently changed its policy and is now including most annuities as an available resource. Many financial companies are now willing to purchase and place a cash value on fixed annuities, and as a result, the annuity may be sold and used for nursing home expense. Nebraska Health and Human Services could change their policy in the future.

GUARDIANS AND CONSERVATORS

This information describes the general duties and obligations of guardians and conservators. If you have any questions regarding the performance of your duties you may contact our office.

If you have been appointed guardian you have charge of your ward's person. If you have been appointed conservator, you have charge of the protected person's property. If you have been appointed both guardian and conservator, you have charge of both the protected person and his or her property. The court has issued you letters of guardianship or conservatorship which specify the limitations placed upon you.

Both guardians and conservators are entitled to fees and expenses for their services. When you make your annual accounting to the court, you should file an application for fees. The court will then authorize a reasonable fee. You must not pay yourself any fees without first getting the court's approval.

If you or your ward move to a different address, you must notify the court in writing immediately. The court must also be notified if your ward dies.

GUARDIANS

As guardian, you have the duty to take charge of your ward's person and provide for his or her care, treatment, habilitation, education, support and maintenance. Your powers and duties include:

(a) assuring that your ward resides in the best and
least restrictive setting reasonably available and

(b) promoting and protecting the care, comfort, safety,
health and welfare of your ward.

A guardian may receive money payable for the support of the ward and apply it toward the ward's current needs. Any excess funds are to be conserved for future needs. If a conservator has been appointed, the ward's excess suns of money should be delivered to that conservator at least yearly. As guardian, you are not legally obligated to provide for the ward from your own funds.

If there is anyone who has a legal obligation to support your ward, you may institute legal proceedings to compel that person to do so.


As guardian, you will be required to file with the court an annual status report concerning the condition of your ward. You will also be required to file an account of any assets of the ward which are subject to your control, along with a certificate of proof of possession of all intangible personal property existing at the end of the accounting period.

Your accounting will show the amount of money you had at the beginning of the accounting period, all money received and spent, and the balance remaining at the end of the accounting period.

Upon termination of the guardianship, you must settle accounts with the ward or the ward's representative and turn over all assets to whomever is legally entitled to them. You should be aware that court approval is necessary before a guardianship is considered terminated.

Normally our office will send you a reminder concerning the deadlines for the filing of the various documents described above with the court. If you have any questions concerning the filing dates or the information contained within the above-described documents, please do not hesitate to contact our office.

CONSERVATORS

As conservator, you must take possession of the protected person's property. The court will normally require you to post a corporate surety bond for the full value of the protected person's estate. The amount of that bond will be reviewed by the court periodically to be sure it is adequate, and it may be increased or decreased.

The conservator is considered a "fiduciary" or one who holds something in trust for any other. You must observe the standards of care in dealing with the protected person's assets that would be observed by any prudent person in dealing with property belonging to another. A conservator should make only conservative, safe and insured investments.

As conservator you may not:

(a) mingle the protected person's assets with your
own

(b) make loans to yourself or a third person

(c) make any speculative investments.

Without prior court approval you may not:

(a) buy from nor sell to the protected person's estate

(b) invest in real estate

(c) allow any third party to profit from the protected
person's estate

(d) sell any real estate belonging to the protected
person.

As conservator, you are obligated to recover assets due the protected person and pay all reasonable and necessary expenses from his or her assets. You may apply to the court for an order of continuing support and maintenance, which will authorize you to spend a budgeted sum each month for the protected person.

You are not obligated to pay the expenses of the protected person from your personal assets. However, you must disclose to those with whom you are dealing that you are acting in the capacity of conservator.

Within ninety (90) days of your appointment as conservator, you must file with the court an inventory of the assets belonging to the protected person. You must provide a copy of the inventory to the protected person and to all other interested parties, including the bonding company.

In addition, you must make a full accounting to the court one (1) year after your appointment and once every 12 months thereafter. This accounting must contain an itemized statement of assets in your possession at the end of the accounting period. The accounting will show the amount you had at the beginning of the accounting period, all money received and spent, and the balance on hand at the end of the accounting period.

You must prove the existence of intangible assets, such as bank accounts or certificates of deposit, by attaching to your accounting a Certificate of Proof of Possession. These forms will be furnished to you by the court if you request them.

The accounting should be sent to the court along with the $5.00 filing fee. In addition, you must send copies of the accounting to all interested parties and the bonding company. You will file with the court a certificate of mailing showing these copies were mailed.

A hearing may be held to approve your accounting if you, another interested party or the court requests one. If you have questions about the inventory or accounting, you may contact our office for assistance.


When the conservatorship is ended, you must make a final accounting to the court showing all property received and disbursed and what you are presently holding. When the accounting has been approved, the court will enter an order directing the property to be distributed.

Residential Real Estate & Estate Planning and Probate

I. INTRODUCTION
The American dream!!!! Owning real estate in some exotic place! Skiing in the mountains, sitting on the beach, golfing PGA courses, or just being closer to the kids in the summer time are all reasons to own real estate other than your primary residence. Normally this type of real estate ownership is in a desirable location which can result in a large appreciation in value over a short period of time. This outline will give practitioners some idea of the income tax, organizational structures, estate planning alternatives, and distribution on death relating to real estate owned by their clients. The outline will primarily focus on residential real estate other than a primary residence, such as a second home or vacation home. This outline will not address real estate ownership in foreign countries.




II. FACTUAL SCENARIO
The following factual scenario will be utilized in this outline (hereinafter referenced with the words “in our example”):
Hank and Wilma Rich live in York, Nebraska, where they run a very successful specialty donut shop. They own a home in York worth $250,000.00. They own the business and property worth $1,400,000.00. They have other liquid investments worth $700,000.00. Hank and Wilma have no debts, other than ordinary business debts. They also have 2 children, Bobby, age 30, and Gayle, age 25, who luckily live outside their home. They enjoy skiing in the mountains of Colorado and have recently considered buying real property in Colorado, near Beaver Creek. They have also considered purchasing property in Florida and Arizona. In order to reduce the cost of the purchase, they have also considered buying the real estate with some friends and splitting the use. They come to their attorney, Dudley Dewright, for advice on the possible purchase or purchases and future planning.

III. INCOME TAX TREATMENT OF REAL ESTATE DURING LIFE
The IRS determines the tax treatment of a real estate based upon its use. Is it a vacation home located at Bachelor Gulch that the family will occupy most of the winter season? Is it a real estate investment that is rented out most of the time or a structure that houses a satellite business? Is it a lot in Arizona waiting to be built on? The use of real estate may also change over a period of time from an investment to a personal residence. For purposes of this outline, the tax treatment section will only cover one real estate property, and a third or fourth property may not receive the same tax treatment as a second home. See IRS Publication 936 (2005).
A. WHAT IS A SECOND OR VACATION HOME?
For favorable tax treatment, a second home does not have to be a house. It may also be a condominium, cooperative, mobile home, house trailer, or boat. As long as it has sleeping, cooking and toilet facilities, it can be treated as a second home. A second home does not include property used exclusively as a hotel, motel, inn or similar establishment. IRS Publication 936 (2005). A self-propelled motor home was considered a second home for income tax treatment. Haberkorn v. Comm., 75 TC 259 (1980).

B. SECOND OR VACATION HOME INCOME TAXATION
There are three categories of second homes. The categories are primarily based upon how the home is used and are determinative of how the house is treated for purposes of income tax benefits and capital gains taxes. The most common category for second homes or vacation homes are those used and taxed for “personal use”. However, the fact that a house is placed in one category for one tax year does not prevent it from moving to another category the following tax year if the use changes.
1. PERSONAL USE
A second home may be used purely for personal use. If a dwelling used as a residence is rented for less than 15 days during the taxable year no deduction is otherwise allowable because of the rental usage is allowed and the rental income is not included in gross income. IRS Publication 537, at 5 (2005). Under this set of circumstances, the owner does not have to pay taxes on the money he earns from renting the home. IRS Publication 936 (2005). The other benefit is a tax deduction of home mortgage interest secured by the property if the debt is $1,000,000 or less ($500,000 or less for married and filing separately). IRS Publication 936, at 1-2 (2005). The major pitfall to making this use of the property is that you cannot take tax deductions for losses related to the property.
2. PARTIAL RENTAL
A second home may be rented out but still qualify for the mortgage deduction. To maintain the mortgage interest deduction (applied against the owner’s taxes as a whole), the owner must use the home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. IRS Publication 527 (2005). In this situation (where the property is rented out for 15 or more days at fair market value), the owner is required to pay taxes on rental earnings. See IRS Publication 527, at 5 (2005). However, the owner is allowed to deduct from the total gross incomes of the rentals property taxes and home mortgage interest, expenses relating to operating or maintaining the dwelling unit, casualty and theft losses, and depreciation. IRS Publication 527, at 7 (2005). However, only the percentage of these expenses proportionate to the amount of time the property was rented (as opposed by put to personal use) may be deducted. James Fellows, Vacation Homes and Federal Tax Law, 32 Real Estate Law Journal 150 (2003). In our example, if the Rich family from York lived in their second home for 100 days and rented it for 100 days, they would only be able to deduct half of the above mentioned costs from their rental earnings. Further, losses may be carried forward and applied against taxes on the rental fees in coming years. Id.
3. ITS ALL BUSINESS
Second homes may also be characterized primarily as a rental business if the owner does not make sufficient use of it as a residence (where the property is rented out for 15 or more days at fair market value and the owner does not use the home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental). In this category, the owner loses out on the above mentioned mortgage interest tax deduction, and now may only deduct for mortgage interest against the rent income. Id. at 5. Further for every day of personal usage he makes of the house, he must account for it by decreasing the amount of rental expenses (percentage-wise) against which he can make a deduction. Id. at 5. A day of personal use is any day, or any part of a day, a dwelling unit is:
(1) used for personal purposes by a taxpayer or any other person who has an interest in the unit, unless it is rented as a principal residence under a shared equity financing agreement;
(2) used by a member of the taxpayer's family;
(3) used by an individual who uses the unit under an arrangement which allows the taxpayer to use some other dwelling unit for any period of time whether or not a rental is charged for the use of the other unit and regardless of the length of time the taxpayer uses the other unit; or
(4) used by any individual at less than fair rental value.
Any day spent by a taxpayer repairing and maintaining the property on a full-time basis is not a day of personal use.
If the Rich family used the their second home for 5 days, and it was rented for 95 days, they could only deduct 95% of their expenses from the rent received. See id. Also,

renting homes in this category is considered a “passive activity,” and the owner may not deduct more than $25,000/year in rental losses from adjusted gross income for tax purposes. Id. at 4. Problematically if, the owner’s income is over $100,000, he cannot deduct the full amount of losses, and if his income is over $150,000, he may not deduct any losses on a yearly basis as the deduction is phased out from $100,000 to $150,000. Id. However, any carried over losses may be deducted at the time that the home is sold regardless of the owner’s income. Id.

C. CAPITAL GAINS TAX ON PERSONAL USE
Generally, a second home owner is typically stuck with capital gains taxes when selling a second home that is a personal residence and not a business or investment. However the following are some suggested ways a taxpayer may lessen the burden on the capital gains tax on the sale of a second home which is used as a personal vacation residence:
1. 1031 EXCHANGE-RISKY!!!
Section 1031 of the Internal Revenue Code allows investors to sell a property, reinvest the proceeds in a new property and avoid all capital-gains taxes. The regulation states "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."
Vacation property is generally considered to be held for personal use if it is used by the owner for more than 14 days during the year or for more than 10% of the number of days the property was rented during the year at fair market value.
In 1981 the IRS issued a Private Letter Ruling (Ltr Rul 8103117) that allowed a 1031 exchange on a vacation home that was sold and replaced with another vacation home. The old vacation home that was sold had not been rented for the six or seven years prior to the exchange, and had been held for both "personal enjoyment" and as a "sound real estate investment." The New Vacation Home that was purchased was also intended to be held for the same personal enjoyment and investment intent.
If a homeowner rented the vacation home to unrelated parties for approximately two years prior to the exchange may work. Any rental, even to family or friends, also will help establish the property as being held for investment. A written lease should be used and the rent should be FMV and reported as income on annual tax returns. Additionally, if the letter ruling is correct for all taxpayers, the vacation homeowner should document that he or she has investigated appreciation rates, capitalization rates and possibly even rates of return prior to purchasing the property; keeping logs of repair and maintenance expenses during the period of ownership and having the property appraised periodically to keep track of its value.
2. MAKE INVESTMENT PROPERTY YOUR PRINCIPAL RESIDENCE
Making your investment property your principal residence for two years may allow one to take advantage of the possibility of no capital gains. You will not have to pay taxes on as much as $500,000 of the gain if married and filing a joint return with a spouse or $250,000 if single.
3. KEEP TRACK OF YOUR EXPENSES
Remember that the use of investment property could change over its life cycle and keeping track of all expenses will be beneficial in correctly figuring the real estate’s adjusted basis. Add to the price of the house things such as closing and settlement costs and qualifying improvements so that the capital gain is not so large. Note that, problematically, if your home is sometimes in the business category, and sometimes in the other categories in different years, there is no clear cut answer as to whether it will be treated as business property so that you can deduct for loss when it is sold for tax purposes.
4. DEATH
Pretty sure way to step up the basis on real estate which allows ones heirs to reap the profits on the sale of the real estate. In addition, real estate typically qualifies for stepped up basis on death even if placed in an irrevocable trust.

IV. ORGANIZATIONAL STRUCTURE & MULTIPLE OWNERSHIP
There are many options for ownership of real estate. The best option is dictated by the use of the real estate for tax purposes and the number of additional owners. If the real estate is used exclusively for investment, than an organization such as a limited liability company or corporation would be beneficial to shield the owner or owners from liability and provide for gifting and 1031 exchanges. Individual or fractional ownership is preferable for personal use real estate to avoid domicile issues and allow for possible deductions on financing. Another factor in multiple ownership has nothing to do with liability or taxes and primarily deals with vacation real estate. This factor is what I call “how do I get my money’s worth” factor. If vacation real estate is owned by several individuals, there will need to be rules and guidelines to prevent problems in the future. The following entities will provide a brief idea of a client’s options on ownership of real estate.
A. TIMESHARE
A time-sharing arrangement is any arrangement whereby more than one person with an
interest in a dwelling unit exercises control over that unit for a different period during the year, such as 12 people each exercising control over a dwelling unit for one month of the year.
Under a time-sharing arrangement, a taxpayer's continuing interest in property is considered to be the entire year and not the one month, or whatever other periods the taxpayer has direct control over the units. Thus, for the personal use rules of the greater of 14 days or 10% of the number of days the unit is rented at fair rental value as will be discussed later in this outline, all of the owners' activities are aggregated. The Proposed Regulations treat investors in a time sharing arrangement, effectively, as tenants-in-common.
In our example, if the Rich family was included with 26 individuals who each own a two-week period under the time sharing arrangement, and it is used for personal use by five owners for a total of 10 weeks personal use, then all 26 people, including the Rich Family, will be treated as having used the dwelling unit as a residence during the taxable year. The owners have exceeded the 14 days or 10% of rental days limitation on use.
B. FRACTIONAL SHARES & RULES
Limited fractional ownership or co-tenancy is probably the safest ownership of real estate owned by more than one individual. Ownership is treated the same as the timeshare for tax purposes however, it is much easier to keep track of the “use” your co-owners are making of the real estate if there are less owners.
Timeshares typically already have built in rules that each owner must follow. However, in co-ownership vacation properties in which there are only a few owners (regardless of the entity used), problems may arise concerning the use of the particular co-owners and their families & friends. To alleviate these problems it is advisable to have “Rules” drafted in agreement form so everyone is getting their “fair use” of the property. Attached hereto as EXHIBIT #1 is a sample of Rules and Regulations of vacation property in Missouri that is owned by co-tenants in Nebraska. In addition, attached hereto as EXHIBIT #2 is a sample of an Operating Agreement and House Rules of Organization of a Nebraska LLC which owned Colorado property. The attachments are an example of rules and guidelines which may be used in the co-ownership of vacation property. On a side note, in the sale of the Colorado property owned by the Nebraska LLC, both the CPA and the 1031 advisors in Colorado suggested a like kind exchange for this property, even though the members never rented it out and the property was treated as a personal use vacation home for income tax purposes.


C. FAMILY LIMITED PARTNERSHIPS
There are few advantages to placing real estate under the management of a “family”
limited partnership (FLP), unless the real estate is used for investment purposes. Most second homes or vacation homes are utilized for personal use as previously illustrated in this outline. As long as the real estate is primarily for personal use, the IRS may disregard the FLP for tax protection purposes if it is not used for business purposes. See 9 Merten’s Law of Fed. Income Tax’n. 35:293. Further, special rules apply to personal use real estate that “cannot be escaped by having the taxpayer’s entity own the property.” James Fellows, Vacation Homes and Federal Tax Law, 32 Real Estate Law Journal 150 (2003). Overall, a vacation home will typically be treated as personal use property and will not be treated as part of a business entity unless it is actually used almost exclusively for profit.
D. LIMITED LIABILITY COMPANY
Similar to FLP. Works very well for investment real estate and for gifting purposes. Not so well for personal use second homes unless there is no rental income. If the entity reports rental income on its own tax return (informational or not), the more than likely the vacation home is going to be considered investment property. Arguably the members should be treated the same as fractional share or timeshare owners for personal use vacation homes. In personal use situations, the members may have a problem with protecting the shield of liability from being pierced.


E. CORPORATION
Similar to FLP and limited liability company. Works very well for investment second
homes and for gifting purposes. Not so well for personal use second homes unless there is no rental income. Arguably the shareholders should be treated the same as fractional share or timeshare owners for personal use vacation homes, but not as good of an argument as a LLC or a FLP. If the entity reports rental income on its own tax return (informational or not), the more than likely the vacation home is going to be considered investment property. In personal use situations, the shareholders may have a problem with protecting the shield of liability from being pierced.

V. PLANNING FOR DEATH
Most practitioners realize that families typically will have a special bond with a second home or vacation home that has been in their family. Many holidays and family gatherings were spent there creating fond memories for all. Some clients may care less about tax treatment of their entire estate as long as they can preserve “the cabin at the lake” or the “condo at Beaver Creek” or the “home in Palm Springs” for future generations. The following information will give the practitioner an idea on methods to do this with and without an estate tax benefit as well as brief description of laws and problems incurred with ownership of property in other states.
A. WILL
Using a will to dispose of real estate is not always the most cost effective disposition for wealthier clients. Typically, the entire date of death value of the real estate is included in the estate, which may be good for future capital gains if the property has appreciated (stepped up basis), but hurts when your beyond the estate tax thresholds. The will may contain a provision giving a beneficiary a life estate in such real estate, placing it in a testamentary trust, or specifically devising it to all beneficiaries as co-tenants. Another problem arises with a will disposition of a second home if the real estate is owned in another state than the decedent’s domicile. In this situation, an ancillary proceeding will most likely be necessary involving more administrative costs.
B. REVOCABLE LIVING TRUST
A standard living trust which has the real estate as an asset is a simple way to give some control over a real property and avoid some administrative costs. It will give the owner several options to preserve the real estate after death. The largest advantage, in my opinion, is when the real estate is located in a state other than the decedent’s domicile. No ancillary proceeding is necessary in most cases and the asset may be transferred very quickly. The experience of handling an estate of a client who died in Nebraska who owned property in Arizona, Florida, or California, may cause “sticker shock” to both the practitioner and the family of the decedent. It has been my experience that our brethren in those states apparently have a different lifestyle to support than we do here in the sticks. Attached hereto as EXHIBIT #3 is a sample living trust over a residence that has no marital deduction planning.
C. QUALIFIED PERSONAL RESIDENCE TRUST (QPRT) - EXHIBIT #4 & #5
Assume in our example that Mr. And Mrs Rich found a beautiful second home in Colorado, near a ski resort worth $1.8 million. Also assume that they would like to give the property to their children to reduce their taxable estate but also want to continue to use the property. A estate planning technique called a qualified personal residence trust (QPRT) found under 26 U.S.C.A. § 2702(a)(3)(A) of the Internal Revenue Code and 26 CFR § 25.2702-5(c) of the Gift Tax Regulations, can help the Rich family do just that. A QPRT is not to be confused with a GRIT (Grantor Retained Interest Trust) under 2702. If the remainder beneficiaries in a GRIT are ancestors, lineal descendants or siblings of the grantor (or spouses of any of them), there is no benefit to putting the vacation home in a GRIT.
The QPRT allows Mr. & Mrs. Rich to pass their home to their children at a fraction of its current value for gift tax and unified credit purposes while continuing to use it during their lifetime. A QPRT also may allow Mr. & Mrs. Rich to transfer future appreciation on the property gift and estate tax free.
1. QPRT GENERAL GUIDELINES
To qualify as a QPRT, a trust must meet several criteria:
-It must not contain assets other than a personal residence. However, it can contain a limited amount of cash for operating expenses.
-The personal residence must be the term holder's principal residence or one other residence of the term holder (vacation or second home).
-Income from the trust must be distributed to the term holder at least annually.
-The trust instrument must prohibit distributions of corpus prior to the end of
the trust term to any beneficiary other than the transferor.
-The term holder's interest may not be commuted or prepaid.
-The trust must cease if the residence ceases to be used as a personal residence of the term holder.
- Within 30 days after ceasing to be a QPRT, the assets must be distributed to the
term holder or the trust must be converted to a grantor-retained annuity trust (GRAT).
2. WHAT DOES THE IRS CONSIDER A PRINCIPAL OR OTHER RESIDENCE?
The IRS has ruled the following properties qualify for a QPRT:
-A home, two buildings, and a swimming pool on a large tract of land that was restricted by a conservation easement. Let. Rul. 200039031.
-A residence on a 65-acre tract. Bennett, DC-Ga, 61-2 USTC.
-A vacation home qualified for QPRT status despite having a Jacuzzi, a separate one-bedroom cabin, a tennis court, and sufficient acreage to qualify for a conservation easement. Let. Rul. 200109017.
-A 2.5-acre parcel with a home and a barn that was co-owned by a husband and wife and severed from a 14.3-acre parcel which was leased to a farmer. Let. Rul. 200004037.
-A gift of the grantor's house that was transferred to a QPRT by the beneficiary pursuant to a power of attorney. TAM 199944005.
-A grantor's stock shares in a cooperative apartment. Let. Ruls. 199925027, 9447036, 9433016, and 9151046.
-A home owned by a couple as community property. Let. Rul. 199908032.
-A vacation home with a section that is leased to unrelated individuals. Let. Rul. 199906014.
-Land with multiple buildings, all of which were used residentially. TAM 9722009.
-Three adjoining parcels with land appropriate for residential purposes. Let. Rul. 9705017.
-A 16.6-acre coastal property was qualified for use in a QPRT. Let. Rul. 9645010.
3. HOW DOES A QPRT WORK?
a. The Basic Idea:
A QPRT may serve a useful purpose when the settlor wishes to transfer his or her personal residence to family members (usually children) at some time in the future, and to reduce the overall transfer tax cost--that is, estate and gift tax cost-- of the transfer. For gift tax purposes, the original transfer will be treated as a gift of the remainder to the remainder beneficiaries (for example, the children) and the settlor must file a gift tax return at the time the residence is transferred to the trust. The value of the remainder is derived by first determining the fair market value of the entire property, and then subtracting the value of the retained interest.
The value of the retained interest is a function of the length of the trust term, calculated in conjunction with interest rates published by the IRS for making present value calculations. Other things equal, the longer the term of the trust, the larger the value of the retained interest, the smaller the value of the remainder, and the smaller the taxable gift. The amount of gift tax due will usually be offset by the settlor's unified credit so there should not be any out of pocket payment, but the settlor's credit (against future taxable gifts or estate tax) will of course be reduced.
b. The "Gamble":
If the settlor dies before the trust has terminated, the residence will be included in his or her taxable estate, and estate tax will be paid on it, because the settlor retained the use of the property for a period that did not end before his or her death. That is, the purpose of the trust will have been defeated. If the settlor does not die during the trust term, however, the property will be distributed to the child(ren) without further transfer tax.
As previously mentioned, when the trust term is relatively long, the value of the gift to the remainder beneficiaries will be relatively low, and the gift tax cost of transferring the residence to the trust will be correspondingly low. In contrast, when the trust term is relatively short, the value of the gift to the remainder beneficiaries will be relatively high and the gift tax cost of transferring the residence to the trust will also be correspondingly high. However, the lower gift tax cost that results from a relatively long trust term must be weighed against the greater risk that the residence will be included in the settlor's gross estate if he or she dies before expiration of the trust term. In theory, a QPRT will afford the greatest transfer tax savings when the settlor is young and the trust term is long.
c. The “Good” aspects of a QPRT:
The calculations involved in determining the valuation of the gift are rather complex. However, if the term of the trust were to be set at five years, it is likely that the value of the gift would be about two thirds of the value of the property, and the gift tax would probably be about 40% of that. If, on the other hand, the trust term were set at ten years, the value of the gift would be closer to 40% of the present value, and the gift tax would be about 40% of that. The obvious disadvantage with the longer term is that it reduces the likelihood that the settlor will outlive the trust term; that is, it increases the chance that none of the hoped-for benefits of the trust will be realized. The longer term also increases the likelihood of substantial market appreciation, i.e., a large trade-off of capital gains tax savings for transfer (estate and gift) tax savings.
In our example, lets assume Mr. & Mrs. Rich, set up a QPRT for their $1 million vacation home in Colorado. Their son is the trustee and their son and daughter are the beneficiaries. The home is transferred to son, Bobby Rich, trustee of the Hank and Wilma Rich Qualified Personal Residence Trust, and Hank and Wilma Rich retain a right to live in the home for 20 years. The value of the gift is estimated at $182,000 after deducting the life estate Mr. & Mrs. Rich have retained. They now file a gift tax return in this amount. No tax is due since this gift is well within their estate tax exemption. Had they not set up the QPRT, in 20 years the home would be worth $2,653,000 (at an annual appreciation rate of 5%), bearing an estate gift tax of $1,326,500 at a 50% tax rate (and assuming Hank and Wilma have utilized their exemption). Instead, Hank and Wilma Rich do outlive the trust term and the property goes to the children without any estate tax. Of course, they would have to rent the vacation home from the children if they wanted to continue to use it after the term.
d. The “Bad” aspects of a QPRT
The effects of a carry-over income tax basis must also be considered. This concerns the income tax liability to the remainder beneficiaries (the children, for example) if they sell the residence either following the settlor's death or following termination of the trust. If they were to take the residence by inheritance, it would have an income tax basis "stepped up" to its value as of the date of the parent's death. On the other hand, if the QPRT "bet" succeeds, i.e., if the settlor outlives the trust term and the children take the remainder under the terms of the trust, their basis will be the same as the settlor's. If there is substantial market appreciation over the price the settlor paid, the increased capital gains tax may well offset the lower gift tax achieved by the QPRT.
A QPRT is an irrevocable trust. Unless the trust ceases to qualify as a qualified personal residence trust, the settlor cannot expect to regain ownership of the residence, and when the trust term expires according to the provisions of the trust instrument, the residence will automatically pass to the remainder beneficiaries. After expiration of the trust term the residence may be unavailable to the settlor either as a residence or as an asset that can be sold if financially necessary. Also, because the trust is irrevocable, it must keep its own books and file annual federal and state income tax returns. The expense and bother of these factors should be considered.
The settlor may also be required to leave the personal residence when it is distributed as at the end of the term, the settlor forfeits all right to occupy and control the property. However, settlor can rent the property by paying fair market rent when the term of the trust expires. NOTE: It may be risky to enter into a lease arrangement before the end of the original trust term as that the settlor will not in fact lose the use of the residence on expiration of the trust term, but will have some right to remain in the residence beyond that time. It is possible that the trust might not be recognized as a QPRT and the advantages of the trust would be totally lost.
e. Eligibility for Capital Gain Exclusion & Income Tax:
If the trust instrument requires that any income of the trust be distributed to the settlor, the trust is a "grantor trust" for income tax purposes and the settlor will be treated as the owner of the trust for income tax purposes. Because of this the settlor may deduct trust deductions for real estate taxes and any otherwise deductible mortgage interest and may elect to take advantage of the $250,000 ($500,000 for a married couple) exclusion of gain on any sale of the residence. If the residence is sold, the basis may also be carried over to any replacement residence under provisions of the Internal Revenue Code.

D. DOMICILE & TAX SITUS
For estate tax purposes, an individual can only have one domicile. If that domicile is in Nebraska, the individual’s estate in Nebraska will be subject to Nebraska death tax. Changing an individuals domicile is an effective way to minimize state death taxes. In our example, lets assume the Rich family decide to buy a vacation home in Florida. Upon their retirement, the Rich family should consider changing their domicile from Nebraska to Florida as Florida has no state death tax. When recommending a change in domicile, the practitioner should review the laws on domicile of the particular state as there is no clear cut rule that applies in every state other than the rule that an individual taxpayer can only have one domicile.
If part of that individual’s estate is land in another state (the “tax situs” of the asset), then the land is subject to the laws of that state. In our example, the Rich family might consider buying a vacation home in Florida which has no estate tax. If Mr. & Mrs. Rich die in Nebraska, generally speaking, their vacation home in Florida is not subject to Nebraska inheritance and Nebraska state estate tax, and thus will pass state estate tax free. NOTE: 1. Some state’s only reduce the gross taxable estate (i.e. Vermont) if the tax situs state taxes the real property. 2. Placing real property located in another state in a business entity may cause, in some case, the nature of the asset and thus the tax situs to change to the state of the business entity or domicile of the owner (known as equitable conversion).
E. COLORADO CAPITAL GAINS OR “REVENGE OF THE BUFFALOS”
Apparently Colorado, like some other states with a large volume of vacation homes, did
not like non-resident owners of properties in resort mountain areas leaving town with profits. Under Colorado law, the sale of Colorado real estate by a non-resident requires the closing agent to pay to the Colorado department of Revenue either 2% of the total sale price or the net proceeds of the sale, whichever is smaller. C.R.S. §39-22-604.5. The non-resident must then file a Colorado tax return if they want their money back. The payment is typically not necessary in a 1031 exchange. (See EXHIBIT #6)

VI. PROBATE
A. AVOIDING PROBATE FOR LOW VALUE REAL ESTATE
If a decedent has a parcel of real estate in Nebraska in their name that is worth less than
$25,000.00, then it is possible to distribute that property to the heirs without the necessity of filing a probate under Neb. Rev. Stat § 30-24,129, which states as folows:

Succession to real property by affidavit.
(a) Thirty days after the death of a decedent, any person claiming as successor to the decedent's interest in real property in this state may file or cause to be filed on his or her behalf, with the register of deeds office of a county in which the real property of the decedent that is the subject of the affidavit is located, an affidavit describing the real property owned by the decedent and the interest of the decedent in the property. The affidavit shall be signed by all persons claiming as successors or by parties legally acting on their behalf and shall be prima facie evidence of the facts stated in the affidavit. The affidavit shall state:
(1) the value of the decedent's interest in all real property in the decedent's estate located in this state does not exceed twenty-five thousand dollars. The value of the decedent's interest shall be determined from the value of the property as shown on the assessment rolls for the year in which the decedent died;
(2) thirty days have elapsed since the death of the decedent as shown in a certified or authenticated copy of the decedent's death certificate attached to the affidavit;
(3) no application or petition for the appointment of a personal representative is pending or has been granted in any jurisdiction;
(4) the claiming successor is entitled to the real property by reason of the homestead allowance, exempt property allowance, or family allowance, by intestate succession, or by devise under the will of the decedent;
(5) the claiming successor has made an investigation and has been unable to determine any subsequent will;
(6) no other person has a right to the interest of the decedent in the described property;
(7) the claiming successor's relationship to the decedent and the value of the entire estate of the decedent; and
(8) the person or persons claiming as successors under the affidavit swear or affirm that all statements in the affidavit are true and material and further acknowledge that any false statement may subject the person or persons to penalties relating to perjury under section 28-915.
(b) The recorded affidavit and certified or authenticated copy of the decedent's death certificate shall also be recorded by the claiming successor in any other county in this state in which the real property of the decedent that is the subject of the affidavit is located.
(See EXHIBIT #7 attached)
Similar to Nebraska law on transfer of real property of limited value by affidavit filed with
the recorder or deeds. The dollar value limit in Arizona is $50,000.00 in equity value. Also, in Arizona, a title company will typically accept the assessed value as opposed to fair market value (See EXHIBIT #8 attached).
Nebraska law also protects a subsequent purchaser of property which was distributed to the seller by affidavit. Under Neb. Rev. State § 30-24,130, “A successor named in an affidavit under section 30-24,129 shall have the same protection as a distributee who has received a deed of distribution from a personal representative.” However, the statute does further state, “Nothing in this section affects or prevents any proceeding to enforce any mortgage, pledge, or other lien upon the real property described in the affidavit.”
B. JOINTLY OWNED REAL PROPERTY
Typically a husband and wife will own real property as joint tenants with right of survivorship during their lifetime. In order to pass clear title to the survivor, a certified copy of the death certificate with the legal description of the property should be filed with the register of deeds. In addition, our office will typically file an affidavit of death along with the death certificate to clear up any estate or inheritance tax issues or questions concerning the surviving spouse’s identity. (See EXHIBIT #9 attached). No probate proceeding is necessary for jointly owned property. However, if jointly owned real property is not owned between a husband and wife, an inheritance tax determination will have to be made upon such property in order to clear title and release the liens placed upon such property under Neb. Rev. Stat. §77-2003and Neb. Rev. Stat. §77-2102.
C. FILING THE PROBATE
If a probate or trust administration in a county court in Nebraska involves real property,
a certificate evidencing the proceeding and describing the real estate must be filed within 10 days after describing the real estate in the proceeding with the Register of Deeds in the county where the real estate is located under Neb. Rev. State § 25-2708, which states as follows:
In any proceeding in the county court involving (1) the probate of wills, (2) the administration of estates, (3) the determination of heirs, (4) the determination of inheritance tax, (5) guardianships, (6) conservatorships, where real estate is any part of the assets of the estate or proceeding, or (7) trusts, where real estate is specifically described as an asset of the trust, the county judge before whom the proceeding is pending shall issue a certificate which shall be filed with the register of deeds of the county in which the real estate is located within ten days after the description of the real estate is filed in the proceeding. The certificate shall be in the following form:
This is to certify that there is pending in the county court of ............... County, a proceeding ...................................................................
(describe proceeding and name of person involved)
in which the following described real estate is involved, to wit:
...............................................................................
(describe real estate)
...................................
County Judge

C. TRANSFERRING REAL PROPERTY IN PROBATE
If an estate involves real estate, the personal representative has typically two choices with
respect to the distribution of the real estate. If the will does not specifically devise the real estate, the personal representative may sell the real estate to a third party at fair market value and distribute the proceeds to the heirs. This transfer is typically accomplished through the use of a Personal Representative’s Warrant Deed which is similar to a standard warranty deed (See EXHIBIT#10). If the will specifically devises the real estate or if the heirs do not desire it to be sold, the personal representative will sign a document called a “Deed of Distribution” to distribute the real estate “in kind” to the heirs (See EXHIBIT #11). With respect to the “Deed of Distribution”, Neb. Rev. Stat. § 30-24,105 states:
If distribution in kind is made, the personal representative shall execute an instrument or deed of distribution assigning, transferring, or releasing the assets to the distributee as evidence of the distributee's title to the property. If the distribution is of real property, the deed of distribution shall be recorded with the register of deeds in each county in which such real property is situated and shall indicate the court in which probate proceedings were conducted.

In an effort to protect a third party purchaser of such real estate distributed “in kind”, Neb Rev. Stat. § 30-24,108 states:
If property distributed in kind or a security interest therein is acquired by a purchaser or lender for value from a distributee who has received an instrument or deed of distribution from the personal representative, the purchaser or lender takes title free of any claims of the estate and incurs no personal liability to the estate, whether or not the distribution was proper. To be protected under this provision, a purchaser or lender need not inquire whether a personal representative acted properly in making the distribution in kind.



D. DISCLAIMER OF JOINTLY OWNED PROPERTY
A disclaimer is an irrevocable and unqualified refusal to accept the ownership of an interest in property. The effect of a disclaimer is to treat the interest in the disclaimed property as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. For example, if a decedent's will provides that the decedent's residuary estate passes to his wife and, if the wife is not then living, to his then living children, the wife's qualified disclaimer of her interest under the decedent's will has the effect of treating the wife as if she had predeceased the decedent. The result is that the disclaimed asset passes directly from the decedent to his children. The advantage in utilizing a disclaimer is that there is no transfer from the decedent to the wife followed by the transfer from the wife to the children. By skipping the wife in the above example, the gift or estate tax from the wife to the children is avoided.
In order for the disclaimer to be effective for federal estate and gift tax purposes it needs to be a "qualified disclaimer" as defined in 26 U.S.C. § 2518 and the related regulations. A qualified disclaimer must satisfy the following requirements: (i) be irrevocable and unqualified; (ii) be in writing; (iii) be delivered to the transferor of the interest, the transferor's legal representative, the holder of legal title to the property to which the interest relates or the person in possession of such property; (iv) be delivered no later than the date which is 9 months after the later of the date on which the transfer creating the interest in the disclaimant is made or the day on which the disclaimant attains age 21; (v) the disclaimant may not have accepted the interest or any of its benefits; and (vi) the interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.
In the case of jointly held property there are a few special rules. If the subject of the intended disclaimer is an interest in a joint tenancy with right of survivorship to which the disclaimant succeeds by operation of law, the qualified disclaimer of such interest must be made no later than 9 months after the death of the first joint tenant to die. The interest in a joint tenancy to be disclaimed is deemed to be one-half of the interest in the property even if the non-disclaiming co-tenant has contributed all the consideration for the property. (See EXHIBIT #12 sample disclaimer).
A disclaimer is a very flexible and useful post-mortem estate planning device, that requires careful planning within a short window of opportunity. The consequences of disclaimers need to be fully analyzed before they are set in motion. Full compliance with the technical requirements of 26 U.S.C. § 2518 as well as Nebraska law on Renunciation of Succession in Neb.Rev.Stat. § 30-2352 (30-2352 is attached as EXHIBIT #13) is necessary.
VII. CONCLUSION
Real estate can be a great investment with proper estate and income tax planning. The practitioner must be aware of the potential pitfalls such ownership may have both before and after the purchase and the options the client’s heirs may have after death.

Advance Directives- the Legacy of Karen Ann Quinlan

On the night of April 15, 1975, for reasons still unclear, Karen Ann Quinlan ceased breathing for at least two 15 minute periods. Shortly after, she received some ineffectual mouth-to-mouth resuscitation from her friends. She was then taken by ambulance to Newton Memorial Hospital in New Jersey and was placed indefinitely on a respirator. Month after month, Karen remained hooked up to the respirator in a persistent vegetative state, with no signs of improvement. After six months and thousands of dollars in medical care, Karen’s family realized her condition would not improve and discussed the possibility of removing her from the respirator knowing it would cause her death in a short period of time. The doctor and hospital, after initially agreeing, changed their minds and refused to remove Karen from the respirator. Karen, while on the respirator, was described as emaciated, having suffered a weight loss of at least 40 pounds, and undergoing a continuing deteriorative process. Her posture was described as fetal-like and grotesque; extreme flexion-rigidity of the arms, legs and related muscles; and her joints were severely rigid and deformed. The family brought suit to win the right to remove her from the respirator and the case made its way to the New Jersey Supreme Court. In 1976, The New Jersey Supreme Court gave the Quinlan family the right to remove the respirator. Karen was eventually removed from the respirator. Unexpectedly, she continued to live in a vegetative state for another ten years with the assistance of nutrition and hydration tubes. The Quinlan case was highly publicized and as a result brought death to the forefront of the nation’s attention. After the Quinlan case, a term known as advanced directives emerged as a legal device for an individual to state his or her wishes concerning death.
An advance directive is another word for a written document intended to let your family and medical practitioner know what your wishes are concerning life-sustaining treatment. These wishes are only effective if you fall into a state where you are no longer able to communicate your desires concerning life sustaining treatment. There are basically two types of advanced directives in Nebraska, the living will and the power of attorney for health care. A living will is a statement signed by an individual which declares that individuals wishes concerning the withdrawing or withholding of life-sustaining treatment if they were ever in a persistent vegetative state. This statement is typically signed before a notary public or witnessed by two witnesses. A power of attorney for health care not only includes a persons wishes on life sustaining treatment but also gives another person, called an "agent" the power to make sure their wishes are adhered to. The power of attorney is typically signed before a notary public. There are important restrictions under Nebraska law concerning who may witness or notarize a living will or power of attorney for health care and the relevant law should be carefully reviewed by an attorney before executing a living will or power of attorney for health care.
Under current federal law, all health care institutions are to make available to patients information about their rights to make an advance directive for their medical treatment. Most care facilities in Nebraska ask a new patient upon admission about the patients advanced directives and in some cases even provide forms for advanced directives. In addition, most care facilities and medical practitioners have a designated area in a patients medical file for copies of advanced directives signed by the patient.
One of the continuing debates in the advanced directive area is the withdrawal or withholding of nutrition and hydration tubes from a dying patient. In Nebraska, if it is a persons desire to include the removal of food and water tubes (nutrition and hydration), such desire must be specifically mentioned in the advanced directive. There is some debate in the medical community whether or not the removal of nutrition and hydration tubes, or the starving of a person to death, will cause the patient discomfort. Some practitioners argue that if a patient is in a persistent vegetative state, they have no mental concept of pain or discomfort and therefore nutrition and hydration tubes take the form of a utility or a machine as opposed to a necessity. However, other practitioners state that science is not able to accurately test the concept of pain under these circumstances and to die as a result of starvation is not a proper avenue for termination of life regardless of the condition of the patient.
If a patient in a hospital changes their mind about life sustaining treatment, there is a very simple procedure for revoking an advanced directive. Under Nebraska law, a patients advanced directive may become void based upon the oral representations of the patient. In other words, if you have an advanced directive saying you do not want to be kept alive by machines, you may revoke that advanced directive at any time by letting your physician or other medical practitioner know that you no longer desire it to be effective.
If you are considering the signing of an advanced directive, you should consult not only your family members, but also your attorney, and your medical practitioner. In addition, a person considering an advanced directive may wish to reflect upon their religious beliefs and possibly contact a clergy member as many faiths have suggestions or guidelines on the extent they will recognize an advanced directive.