Home Sweet Home

Once again the ‘Good ol’ US of A’ has weathered another storm. The recession is behind us and the economy is again moving forward. The employment numbers are rising, the stock market is doing well and home prices are recovering.

Regarding home price recovery, I have just finished reviewing Household Wealth in the U.S.: 2000 to 2011. I do enjoy statistics, and this brochure by the Census Bureau is chock full of fun factoids. An item of note, for the majority of U.S. households, home equity continues to remain their single largest asset

While the fact that home equity continues to be the single largest asset may be news to many, it is an established fact for many creditors. Over the years, plaintiffs’ attorneys have been successfully going after the equity in homes to settle lawsuits. They may not be able to immediately take your home away (jurisdictionally dependent); however, they will be able to secure a judgment for the home, and when the owner finally sells the home, the judgment, legal fees and interest all come due at the real estate closing—ouch!

Until recently, one solution to discourage litigation was to have a large mortgage on your home. The presumption is that no one wants to litigate for an asset that is encumbered with debt. As a result of the recession, many consumers are now paying down their mortgages, or just paying them off.  An unintended consequence of the debt reduction is the creation of an appealing asset for a judgment.

One way to make a personal residence less appealing for a judgment is the creation of a qualified personal residence trust (QPRT). Originally these trust(s) were used to remove the home from the taxable estate, while still allowing the homeowner to continue to live in the home for a period of years. Today, asset protection attorneys are turning to this estate planning technique for asset protection. For those who are keeping track, a QPRT is an Intentionally Defective Grantor Trust. There is much more to a QPRT, and there are strings attached which we will review in the next posting.




Speak Your Mind