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Naming a trust as the designated beneficiary of  your IRA has several very important advantages over directly naming the beneficiaries. First, the beneficiary may be a minor, not prudent with money, have marital or creditor issues, or may be disabled. Second, if the beneficiary dies before distribution, the contingent beneficiaries may not be correct. Third, the beneficiary may intentionally or unintentionally withdraw the IRA. In addition, naming the client’s revocable living trust as the beneficiary, even with the appropriate “conduit-trust” language, may create issues with the age of beneficiaries in order to “stretch-out” the required minimum distributions. In 2005, the IRS issued Private Letter Ruling 200537044 (the “PLR”) that approved a new type of revocable trust created solely to be the beneficiary of an IRA account. As a result of this PLR, it is now possible for you to create a stand-alone trust which provides maximum protection and flexibility.

This IRA Beneficiary Trust® insures that your beneficiaries (those who will receive the IRA’s after your departure) “stretch-out” their taxable, required minimum IRA distributions over a much longer period of time; with this trust, the age of each beneficiary becomes the operative age for that beneficiary’s required minimum distribution. And, if you do it right, the IRAs can continue to compound for many years income-tax free - - and may literally grow to be worth millions of dollars! This type of trust is also called an IRA trust, an IRA Inheritance Trust, a standalone IRA trust, an IRA stretch trust or an IRA protection trust.

When your children and grandchildren inherit your IRA funds and they keep the funds in the IRA over their lives and only take the required minimum distributions each year (the “stretch-out”), the amount of money that can be earned, accumulated and paid to them can be staggering. To illustrate how this compounding works, assume your beneficiary receives a $100,000 IRA account; If we use two different ages (10 and 35) for the beneficiary and assume that the account averages an annualized 8% return: for the beneficiary who is age 35 at the client’s death, the total benefit is $1,228,630 and for the 10 year old beneficiary, the total benefit is $5,363,512!

This wealth accumulation strategy only works if the beneficiaries retain the inherited funds inside the IRA account. If a beneficiary takes all of the funds out of the IRA account (called a “blow-out” because it blows the stretch-out), this wealth accumulation technique will be lost. One of the reasons to create an IRA Beneficiary Trust® is because it can insure the stretch-out and can prevent a blow-out. This blow-out happens way too often and jeopardizes planning that could have been saved. The beneficiaries may not be aware of the tax rules and their distribution choices, so they may immediately withdraw the IRA’s at the first opportunity (or worse yet, do a prohibited rollover!). Or the beneficiary, often influenced by his or her spouse, just decides to withdraw the IRA’s to spend it foolishly. If the “stretch-out” isn’t done properly by the beneficiaries and income taxes are paid up front shortly after the IRA’s are inherited, you and your family could lose hundreds of thousands of dollars (or more). Even if you assume that your children or beneficiaries will do the right thing – that is, keep the funds in the IRA account for their lives to maximize the income tax “stretch-out” of the IRA – the IRA may still be seriously exposed to one or more of the following threats that can arise years after you depart.

For instance, the beneficiary’s spouse may snatch half (or more) of the inherited IRA’s in a divorce. The divorce rate is over 50% and a big pile of inherited money may become a divorce incentive for the ex-spouse. Even though inherited property is separate property, the beneficiary’s ex-spouse’s divorce lawyer will probably go after the IRA funds because the IRA account is frequently the largest asset and the lawyer knows there is a good chance the spouse who inherited the IRA will give a large portion or all of the IRA account just to end the divorce and to be rid of the ex-spouse.

Your beneficiary may have poor spending habits; have creditors and lawsuits that can grab all of the inherited IRA proceeds.

Your beneficiary could lose his or her needs-based government benefits (if he or she ever requires them), such as supplemental income (SSI) or long-term nursing care.

Even if your beneficiary never encounters any of these problems, he or she may get walloped with a huge estate tax when they pass the IRA down to the next generation.

One of the big advantages to the IRA Beneficiary Trust® is the option to give a “Special Trustee” the right to elect out of a straight “conduit-trust” (i.e., where the “Mandatory Retirement Distribution (MRD) must be paid to the beneficiary on an annual basis) to a fully discretionary “accumulation trust” (i.e., where the trustee can hold the beneficiary’s MRD inside the trust). This election must be made, if at all, by September 30 of the year following the client’s death. Making this election may result in a shorter “stretch-out” because the age of the oldest “possible beneficiary” must be used (the Special Trustee is also given the power to limit such possible beneficiaries to minimize this issue); however, having this option to elect between the different forms of trusts provides the flexibility to consider all factors known at the time of death and up to the election deadline (e.g., creditor problems, disability, etc.) which may greatly out-weigh the increase in the income tax costs.

If you have a reasonable IRA you want to pass down or don’t think you’ll need to live on your IRA you absolutely should be thinking about this strategy.

Please contact my law office to get this in place for you and your family as it can make the difference between leaving a legacy and leaving a time-bomb.

Untaxingly,

James Burns, Esq.

These days just about every mortgage is flipped by a lender to another one or sliced up into pools of securitized packages that are sold on Wall Street. The financial engineering helped oil the housing boom by making credit more available. But stalled housing prices and rising defaults have revealed a mess: In the rush to flip paper, lots of the new lenders or pools don’t have the proper paperwork to show they even hold the mortgage.

A Florida attorney noticed two years ago that nearly all lenders seeking to foreclose against clients were filing “affidavits of lost notes”–essentially requests that a judge assume they own the loan since no proof is at hand.

What was found by some average snooping was that the company that filed to foreclose didn’t own the loans. The owner was actually a securitized pool of loans overseen by Deutsche Bank (nyse: DB - news - people ). In one particular case documents showing the pool bought a loan after the homeowner defaulted which is an illegal purchase for most pools, including this one.

In Kansas there was a foreclosure filing with no documents to show the bank owned the loan. In another case, ownership of a loan was recorded on a single date in the name of two different lenders. In March last year Deutsche Bank filed to foreclose on a seven-bedroom home in Worcester, Mass. but it came out that Deutsche was assigned the loan in May or June–that is, after the foreclosure filing. A U.S. bankruptcy court judge in April slammed Deutsche for its “jumble of documents” and ruled the bank could not evict the homeowner.

For the lenders, a possibly bigger threat on the horizon is that homeowners’ lawyers will bust up the “holder in due course” doctrine that makes it easier for subsequent owners of an IOU to collect. This doctrine says that certain defenses the evictee can use against the original lender (such as predatory lending) cannot be used against an innocent purchaser of the mortgage. The rule is provided for in many federal and state statutes, but a judge could nonetheless find a way to side with the homeowner, particularly if a loan is purchased after it goes into default.

There may be cases where it makes sense to challenge the lender to show they own your loan. A law firm can assist with this and keep the transaction under the attorney/client privilege so that what you submit cannot be used against you absent a direct court order which is also arguable.

We always collect the original loan documents and do a forensic audit or request that the bank show they still have them and if they don’t…guess what? We ask them who is the responsible party for a modification and that the client cannot pay someone who is not eligible to receive the payment. Many times the mortgages are even being sold during a default.

James Burns, Esq.

There is a lot of confusion out there about loan modification and who is going to do the best job…it isn’t a shop but a law firm where you enter into a specific attorney client relationship not a shop that claims to have attorneys they work with. Some prosecutors are now pursuing borrowers as you can read in this article.

For one, a broker shop can do no distressed borrower any good with the current situation. As you’ll read in the attached article, some prosecutors will be going after borrowers for participating in fraud by overstating their true income. What this does is make your submission to the lender vulnerable unless you have the attorney/client privilege over your submission…hence the modification process should be a legal maneuver not Joe the Modifier who may be a Pirate that has no right to take an advance fee.

If you must send your clients to a friend who is a broker – make sure they are one of the 18 firms listed on the Department of Real Estate’s website as approved to take an advance fee as many are doing it illegally and offer no real value since they can’t prevent the documents from being used against the borrower because there is no such thing as broker/client privilege.

http://www.dre.ca.gov/mlb_adv_fees_list.html

Not everyone will be a loan modification as we are seeing the abuse of the stated income loan in a gross proportion which makes there no way to modify certain loans unless principal was to be drastically reduced which is not happening although it was announced yesterday there is a plan for some principal reduction by the government to find the market bottom; only time will tell.

LIBOR, COSI, CODI, MTA – these were the indexes of the option arm and then there is the bank’s margin spread which was immense along with the prepayment penalty so the person had to stay locked in for 3 years otherwise they suffer a severe penalty that wipes out most of the equity they would be trying to tap in a refinance or the money they would be trying to save.

If you have a friend, family member or client you care about who is having trouble making their home payments due to a temporary hardship, please have them go to this site and download the questionnaire and fax it in for a FREE evaluation www.foreclosurelegalsolutions.com.

In your service,

James Burns, Esq.

The plan centers on Fannie Mae and Freddie Mac, which between them own or back about 31 million mortgages worth a combined $5 trillion. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages.

Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home’s current value, live in the home on which the mortgage was taken and have not filed for bankruptcy.

Their mortgage payments would be adjusted through lower interest rates or longer repayment schedules with the goal of bringing payments below 38% of monthly household income. Interest rates could be lowered for five years and then raised to a predetermined level. Loan terms could be lengthened to 40 years.

Officials said the standards for loan modifications should fast-track changes in payments. The standards will be applied to loans owned and guaranteed by Fannie and Freddie, but officials said they hope they will also be adopted industry wide.

“We expect that it could significantly increase the number of modifications completed,” said James Lockhart, director of the Federal Housing Finance Agency, the regulator that oversees Fannie and Freddie. …

Fannie reported this week that 1.7% of its mortgages by value are delinquent by 90 or more days. Fannie’s filings suggest that it has about 18 million mortgages on its books, which would work out to about 300,000 mortgages that could potentially be eligible. The borrower will ultimately be responsible for paying the full amount of the principal borrowed, but payment on part of the principal can be deferred to make the monthly payment affordable.

Homeowners who purposefully default on their mortgage to get a modification will not be eligible. Borrowers will have to submit a statement showing financial hardship or a change in financial circumstances, along with proof of their income. The modification will become final once a borrower has made three payments under the modified terms.

But even in cases where declining home prices have taken the value of a home to less than is owed on the mortgage, the balance of the loan will not be lowered under this program.

“This is not loan forgiveness; the loans will be paid but at terms affordable for borrowers,” said Brian Montgomery, commissioner of the Federal Housing Administration.

The fact that mortgage balances will not be reduced for the so-called underwater mortgages — those in which a homeowner owes more than the home is worth — will limit the use and impact of the program, according to some experts.

However, there is a competing interest in getting modifications done and that is the investors who purchased these loans. Some hedge funds, including Greenwich Financial Services and Braddock Financial, told banks in October that they might sue the banks if they changed mortgages that were within mortgage bonds that the hedge funds had purchased. Modifying the terms of mortgages underlying mortgage bonds can change how much those bonds are worth.

Investor rules and underlying servicing contracts with respect to modifications are not uniform and may prevent us from doing modifications that would benefits borrowers and investors.

Under the plan, Fannie Mae, Freddie Mac and other mortgage firms will rewrite the terms on some overdue mortgages so the homeowners won’t pay more than 38% of their monthly income. Modifications could include deferring some of the principal owed, lowering interest rates or extending maturities to as much as 40 years. The process will be streamlined and uniform.

If you know someone in need of saving their home have them contact my office after downloading our questionnaire which should be faxed back to use…get it here .

James Burns, Esq.