Last week my wife made an appointment for me to take her car to have it serviced – the normal oil change, tire rotation bit.  This happens to be one of my least favorite chores to handle.  It usually takes a lot longer than the tech predicts and without fail they generally find something else that “needs attention.”

Well, when I arrived at the dealership I was greeted by a customer service rep in the service department and told her who I was and that I had a service appointment. She quickly printed out the forms, told me what to expect and asked for me to initial and sign a couple of forms that ordered the work on the vehicle.  Then, she asked me to sign an arbitration agreement.  While reviewing it she informed me that, “this is just a form that is used so if we can’t come to terms on something we will meet with a mediator to resolve our dispute.”  As I sat in the waiting room for a couple of hours I heard other customer service reps give this same line to other customers. 

So what is arbitration?

Arbitration is a form of dispute resolution. The easiest way to describe arbitration is to compare it to having a private judge or group of judges.  Arbitration is contrasted to going to court in that you do not have to go through a lengthy litigation process and leave your case up to a judge or jury.

There are a few advantages to arbitration over the regular process.  Some of those are:

Judge Shopping – in a court action you are stuck with the elected or appointed judge.  You don’t get to decide or shop your case around.  With arbitration you are able to choose the person who will be deciding your case.

Speed – The court process is lengthy in large part to the overcrowded court docket.  There are only so many judges and so many hours in the day.  With arbitration you can schedule your case to be heard as quickly as the parties can get ready and coordinate it with all lawyers and the arbitrator.

Privacy – If you file your case in a civil court, it is most likely going to be heard in open, public court.  So anyone could stop in and listen to the proceedings.  Depending on who you or the opposing party are, you could also expect to see press present at the hearing.  In contrast, an arbitration meeting is private.

Depending on the side you are on this next one could be a pro or con.  In general, you will have no appeal rights from the arbitrator’s decision.  This can be set out in the arbitration agreement, but you may not have the automatic right of appeal as you would if a judge decided your case.

Another negative is the cost – Sine your arbitrator is essentially a private judge you and the opposing party will be footing the bill instead of the taxpayers.  These fees can be thousands of dollars – especially for more complex cases.

The arbitration process…

The process is similar to that of regular litigation, with a few tweaks.  First, the parties will outline the contested issues and discovery can be done.  Discovery is an exchange of information critical to the case by the contesting parties.  From there, an arbitrator will be chosen and the arbitration meeting will be scheduled.  The meeting will be similar to a court trial, but slightly more relaxed.  The rules of evidence will lightly apply and rather than being in a court room you will likely be in a conference room.  The parties will make their cases by calling witnesses and presenting evidence.  Finally, the arbitrator will make his decision and the case will end.

Let’s also clarify another comment customer service rep made.  She mentioned that if we could not come to terms we would attend arbitration where a mediator would help us resolve the case.  Arbitration is not where a mediator helps us resolve our case.  That’s mediation.  Mediation is a totally different process.  Mediation is also a dispute resolution service, but rather than having a third party listen to the case like a judge and make a decision – you are actually trying to avo...

Your wife--or former wife--may have a legal claim to your retirement account, so if you decide that you do not want them to have access to your retirement account you will have to takes some steps to prevent it.  People have very different reasons for wanting to leave their retirement accounts to someone other than their wives – good and not so good.  The good reasons are sometimes related to estate planning or tax advice because both spouses have enough assets to live a comfortable life without inheritance from the other.  The not-so-good reasons include trying to hide money or spend it before going through a divorce.  So there are state and federal laws in place to protect those unsuspecting spouses.

To make sure your wishes aren’t thwarted, always get your spouse’s consent in writing before naming someone else as beneficiary. Written consent is always a good idea and may be required by law.  Let’s look at a couple different types of plans:

401(k)

A special rule applies to 401(k) plans and other “qualified plans” governed by federal law: Your wife is entitled to inherit all the money in the account unless she signs a written waiver, consenting to your choice of another beneficiary. It’s not enough just to name someone else on the beneficiary form that your employer gives you.

If your wife agrees to sign the waiver, which should be provided by the firm that administers the 401(k) plan, a plan representative or a notary public must act as a witness, and, a wife who does sign a waiver can withdraw that consent if you later name a different beneficiary, unless the signing spouse expressly gave up that right.

Individual Retirement Accounts (IRA)

If you don’t live in a community property state (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), you are free to name whomever you wish as your IRA beneficiary, even if you’re married.

If, however, you live in a community property state, chances are your spouse automatically owns half of what you have socked away in a retirement account by reason of marriage. If any of the money you contributed was earned while you were married, that money remains “community property,” and your spouse owns half.

The money you contributed before you were married or money that you alone inherited or were given is not subject to this community property rule and is considered “separate property.” Or, if you have an agreement to the contrary, the money you earned is yours to do with as you please.

If the money in your retirement account is community property, and you want to name someone other than your spouse as the beneficiary, get your spouse’s consent in writing.

Without your spouse’s consent, your chosen beneficiary will be entitled to only half of what’s in the retirement account at your death.

What Rights do Former Spouses have?

If your former spouse’s name is still on a beneficiary designation form for any kind of retirement benefit, change it. You should not rely on a divorce decree that awards you your retirement account.  If you fail to change the beneficiary designation your former spouse will end up inheriting the benefit. The plan administrators are required to disburse the funds to the beneficiary listed on the account – not to look at each case and determine who is most deserving of the benefit.  You better go and double check your beneficiary designations right now!  And while your checking out your retirement account beneficiaries, you ought to double check your life insurance beneficiaries as well.

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This week we discuss the question of whether your life insurance policy will be use to pay your debts at the time of your death.  Listen in to find out if your family will be responsible for the debts you leave or if they will have to sacrifice any of the life insurance proceeds you have to pay those debts.

Another form of this question is, "will my loved ones be responsible for my debts at the time of my death?"

The answer is a unique combination of estate planning, probate, and contract law.  As a  general rule, no one else is responsible for your personal debts.  So, if you die with a lot of credit card debt, your wife and children will not be responsible for the debt.  However, your estate is responsible for those debts.  So, if your probate estate holds property, that property can be used to satisfy your debts.  For example: you die with a bank accounts solely in your name with a $20,000 balance.  You also die with a credit card debt of $15,000.  Even if you leave a will devising your entire bank account to your wife, the credit card company will be able to see to have their debt satisfied from the bank account balance leaving $5,000 for your wife to inherit.

Let's take this example back to the life insurance question originally posed.  Now, instead of having a bank account, let's assume you have a $200,000 life insurance policy and $15,000 in credit card debt.  A life insurance policy is a contract and as a matter of contract you can delegate your  insurance proceeds to your chosen beneficiary.  Upon your death, the life insurance proceeds will be paid to your beneficiary, the funds will skip right over probate and none of the insurance proceeds will be required to be paid towards the credit card debt.  If you fail to name a beneficiary or your primary beneficiary predeceases you and you fail to name a replacement or have a contingent beneficiary, then your life insurance proceeds will be paid into your estate.  At that time those proceeds would be used to pay the debts of your estate, and then the remainder would be distributed to the heirs and devisees of your estate.

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We received a question recently:

My parents own a home that I have been living in, and they have expressed an interest in giving it to me.  They do not want me to purchase the home from them, but they are concerned there may some tax implications.  I thought if a parent gives property to a child there are no taxes.  Is that true?  The home has been appraised as is worth $90,000.

My Answer:

You did not mention whether there was a mortgage on the house.  When dealing with gift tax issues, the key to remember is that the equity of the property being gifted is what is subject to tax.  So, if your home is worth $90,000 and there is no mortgage, you have to examine this question for a gift of $90,000.  If there is a $50,000 mortgage associated with the property, then you will examine this question with a gift of $40,000.

First, I am not aware of any special gift tax rules for transfers from parents to children.  Your state or county may not charge a deed recording fee or sales tax for transfers between family members, but the IRS will be interested in all transactions.

Every person has the legal right to make gifts up to a certain amount $14,000 in 2015 without any gift tax effect. This is per person, so you can gift $14,000 to person 1, another $14,000 to person 2, and so on.  In your case, your parents can each give you $14,000 per year with no tax effects so you could effectively receive $28,000 per year.

If you exceed this annual exclusion amount, that does not necessarily mean your parents will owe any tax. Each person has a single lifetime exemption amount that they can pass free of tax, though you do need to file a gift tax return to acknowledge that you’re using up some of that lifetime exemption. This year, the exemption amount is $5,250,000.

I would certainly recommend that you confirm your plans with your tax adviser first.

Helpful Links:

IRS: Frequently Asked Questions about Gift Tax

 

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So you’re having problems getting your landlord to address an issue with your rental? Under a lease, a tenant has certain rights and responsibilities. Let’s say you are doing all of those things and the landlord is still not addressing your problems. What is your remedy?