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Trust Property and real estate transfers - a new law for 2017

Summary: The new law requires that the transfer of real property (real estate) to a trust have a transfer of legal title to the trustee.

There are two new rules regarding the transfer of property to trust.
(1) The transfer of real property to a trust requires a
transfer of legal title to the trustee evidenced by a written
instrument of conveyance and acceptance by the trustee.
(2) If the transferor is a trustee of the trust, an
interest in real property does not become trust property unless
the instrument of conveyance is recorded in the office of the
recorder of the county in which the property is located.

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Beginning February 16, 2016, the rate of tax withholding required by the Foreign Investment in Real Property Tax Act (FIRPTA) will increase from 10% to 15%.  FIRPTA imposes federal tax on the sale of an interest in real property located in the United States by a foreign seller.  To ensure that FIRPTA taxes owed are collected, buyers who are purchasing a real property interest from a foreign seller will now be required to withhold 15% of the purchase price.
Here are the basics you should know regarding The Foreign Investment in Real Property Transfer Act (FIRPTA) when purchasing or selling a home.

The Foreign Investment in Real Property Transfer Act (FIRPTA), 26 USC § 1445(a), makes Buyers liable for the Seller's federal income tax on a sale of real property by certain foreign persons. Under the Act, any Buyer of real property located in the U.S. must withhold an amount equal to 10% (increasing to 15% in 2016) of the amount realized in the transaction by the Seller. The Buyer must record the Seller's taxpayer identification number (TIN) on applications for withholding certificates and other notices or elections. The requirement to withhold applies to every real estate transaction except transactions where one or more of the following apply:

(a) The Seller provides an affidavit to the Buyer that states that the Seller is not a foreign person and discloses the United States TIN (or social security number) of the Seller; or

(b) The interest transferred is an interest in a domestic corporation (e.g., common stock) and the corporation provides an affidavit to the Buyer that states that the corporation is not and has not been a United States real property corporation during the applicable period set forth in 26 USC § 897(c)(1)(ii); or

(c) The Treasury Department provides a "qualifying statement" that exempts the Buyer from the obligation to withhold; or

(d) The property is acquired by the Buyer for use by him/her as a personal residence AND the amount realized by the Seller does not exceed $300,000; or

(e) The interest transferred is a share of a class of stock in a corporation regularly traded in an established securities market.

In reality, many real estate transactions will not require the actual withholding of proceeds because they will qualify for exemption (d) above, since they involve the purchase of a home for the Buyer with a sale price of $300,000 or less.

FIRPTA is confusing and in my opinion, the Seller should be responsible to do this, but the burden has been placed on the Buyer to ensure compliance has been met.

Do I really need a real estate attorney to assist me with my closing?

In some states real estate attorneys are not used with residential real estate transactions.  Illinois (at least northern Illinois) is not one of those states and the use of an attorney is the norm and highly recommended. 

I recently read an article from another Illinois attorney colleague of mine that spoke with a realtor from another state that does not require the use of attorneys for real estate transactions.  The real estate broker in this other state (California if I recall correctly) was bragging about how easy it was to close real estate deals without attorneys in their state.  The Illinois attorney then asked the broker how many lawsuits were initiated in that state when no attorney was used.  The answer was “many” lawsuits. 

Often times everything is going to be “smooth sailing” with a real estate transaction.  But how can someone predict whether other legal issues may arise where the expertise of a real estate attorney will be needed.   When one or more issues arise, your attorney will help resolve the matter prior to the issue getting out of control.  Most people would agree that they don’t want to spend the time (months or years) and cost (thousands of dollars) of litigating something that could have been prevented to begin with. 

Hiring an attorney for your real estate transaction is somewhat preventative medicine.  I would say it is akin to going to the doctor for your annual check-up.  Often times there are no problems and the doctor says you are as “fit as a fiddle”.  It is your doctor telling you that you are healthy and everything is okay, not a non-medical professional.  However, sometimes there may be a health problem and you will have your doctor there helping to make you better before the medical problem gets too bad and really affects your health.   Maybe your doctor at your check-up says, “I see something that concerns me. I think we should do some further tests to determine what the problem is so we can correct it now.”  

Had you not gone to the doctor, those problems would likely get worse and the cure or medicine may be more difficult and expensive.  You wouldn’t go to your auto mechanic to ask if you were healthy because they didn’t go to medical school.  They may know if your car is “sick”, but they don’ know if you are.  Same goes for asking a real estate broker if there are any potential legal problems with the transaction  (who is likely mostly interested in making a commission on this real estate transaction), because they didn’t go to law school or practice the law.  Real estate brokers are marketing people, not legal professionals.  In fact, the Illinois Supreme Court has ruled that real estate brokers are prohibited from performing the tasks of a lawyer (I have other articles posted online that explains what these “tasks” are if you are curious as to what they are).

The greatest role of a real estate attorney is not merely to look at (or fill out) a boilerplate contract, to look at title commitments, or to explain closing documents.  Yes, we do those things; but an attorney’s greatest value to a client is derived from keeping everyone out of trouble, to resolve issues that might be encountered along the way, and to minimize or reduce the chances of a lawsuit.  Because buying or selling a home should not be a litigious matter.

In Illinois, some real estate attorneys are also real estate brokers. However, Illinois law does not allow an attorney to be both the broker and attorney in the same transaction because of a conflict of interest.  The conflict arises because most real estate brokers want a deal to close so that they can make the real estate commission; whereas an attorney isn’t getting paid on whether the deal closes or not.  The attorney is truly looking out for your best interests.

Legal fees will vary some, but the legal fees you’ll likely pay for a residential real closing will be about the same as the fees charged for a property inspection or land survey.  It is quite possible that your attorney will partly “pay for him/herself” by finding inaccuracies or excessive fees charged to you, and buried, in the final closing statement.  If you haven’t retained an Illinois real estate closing attorney to assist you, you probably will be none-the-wiser to these charges and pay them.  Therefore, when you plan on selling or buying your next home in northern Illinois, factor in a few hundred dollars for an Illinois real estate attorney.

#realestate   #realestateattorney   #illinoisrealestate   #chicago   #chicagorealestate  

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A Quitclaim Deed is not a "one size fits all" document for everyone and needs to be carefully drafted for each transfer.  Let me explain:

I write this post after seeing a number of inaccurate postings and "how to" videos by non-lawyers on how to properly complete a quitclaim deed (QCD) in Illinois.  These videos are only partially accurate.  There can be huge ramifications if the deed is drafted improperly or parts left omitted.  Be cautious of people giving legal advice that aren't attorneys... it could be construed as the unauthorized practice of the law.  

However, while on the subject, I will go ahead and address some of the issues that you need to know because they are not included in the generic deed you buy online or at the office-store.  

First off, individuals interested in preparing their own deed need to make sure they create the proper type of tenancy for the new grantee(s) because there are multiple types - each of which effects ownership rights differently.  A property attorney could explain to you how each of these tenancies could impact you favorably or negatively.

Second, ensure the "subject to" clauses are properly included.  This will effect homestead exemptions, property taxes, and a number of other items.  A store bought "generic" QCD does not cover some of these important things needed in an Illinois deed.  I have prepared many deeds for clients, and I cannot think of any that ended up looking like the pre-printed information on the store-bought QCD. 

Third, people that reside in Chicago and several other townships will have to have a final water-reading.  This is the city's way of getting paid up on past-due bills.  You cannot get the "exempt" stamp (explained below) until you obtain a final reading and receipt of payment.  Getting an FPC is a daunting task by itself in Chicago.

In Illinois, the State, County and most cities charge a fee (or tax) when real property is transferred.  However, there are some exceptions that can enable you to be exempt from paying the huge transfer taxes.  Depending on the conveyance, a quit claim MAY qualify to be an exempt transfer.

Not all villages require an exempt stamp, but most of those that do require it charge a small fee for the stamp ($10 to $100).  The City of Chicago is one that doesn't charge, but they do have some other requirements.  

The documents need to be notarized but due to all of the mortgage fraud occurring these days, it is my understanding is that most banks and currency exchanges will no longer notarize "real property" transfers (such as a quitclaim deed) due to liability risks.

My advice to those that need a quit claim deed... for only one or two hundred bucks, it's worth hiring a lawyer to do this instead of risking legal problems in the future from an improper conveyance.  This isn't something an attorney charges huge fees to complete for clients.
#quitclaim     #quitclaimdeed


Only 2 states in the U.S. offer “standby adoptions” and Illinois is one of them.  A Standby Adoption is an adoption that parents create when they are alive just in case they suddenly die or become incapacitated. 

The parents’  Last Will and Testament may appoint a guardian of their children, but if that appointment is ever disputed, court battles can arise.  

However, if a standby adoption has been prepared, there is no issue with this occurring.  This is used to guarantee the guardian that is appointed in the parents' will, will actually become the guardian of a child.
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