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March 2021 Newsletter

March 2021

Dear Clients and Friends,

In the last four newsletters, I covered how to avoid having your assets go through the Probate Court when you pass. Joint property, beneficiaries (including ladybird deeds) and Revocable Living Trusts were all covered. Sometimes those kinds of explanations lean heavily on laws and statutes.

I thought, for a change of pace, this newsletter would be about some of the kinds of questions or problems that come to me each month. Some of these are new. Some are what I call “classic” because they come up every year.

I hope you find the stories both entertaining and enlightening. Some details, like names, have been changed to protect the privacy of my client.


Nancy lived with Bob for over 20 years. They shared expenses but each paid their share of expenses out of a bank account in their own name. The house was in Bob’s name. Bob’s beneficiaries on his IRA were his two children from a prior marriage. They each owned their own cars.

When Bob died, his IRA went to his children, the beneficiaries. The home went to the Probate Court. Since Bob did not have a will, his house and other Probate assets were distributed according to the Law of Intestacy. That means distribution to his children in the absence of a spouse.

Nancy received nothing. Even worse, Bob’s children made her leave the house so they could sell it. Nancy was without her partner and her home.

If you have friends that live together but are not married, be sure they understand the position they find themselves in when one passes away. Many people think there is something called “common law marriage”. Michigan abolished it in 1957.


Karen called earlier this month. She received, through the mail, a 1099 for unemployment income from the State of Michigan and another 1099 for unemployment income from the State of Ohio. Karen is in her 80s and did not actually file for or receive any unemployment checks. Someone has used her personal information, including her social security number, to collect over $15,000 from the two states.

Karen’s immediate problem is how to file her tax return. The IRS is expecting her to pay tax on that income.

Her starting point in Michigan is to call the Michigan UIA hotline at 866-500-0017 or go to and select “report fraud”.


Barbara came to see me about her home. Barbara and her husband had purchased their home from another couple in 1981. That was a time when mortgage rates were as high as 20%. It was a time when homes were purchased on land contract. With a land contract the seller is basically acting as a bank and financing the sale. One major difference from getting a mortgage from a bank is who has title to the property. If you get a mortgage from a bank then you hold title to the property. If you buy on land contract, then the seller holds title to the property. You get title when you make the last payment.

What often happens is that the delivery of title to the buyer when the last payment is made is overlooked. In Barbara’s case, the last payment was made in 2011. It was only when she tried to sell the property in 2020 that she discovered that she did not have title to the property.

She asked for my help and we were lucky. We found one of the seller’s was still alive and living in a home in Ypsilanti. He remembered selling the home and being paid off. He agreed to sign a deed over to Barbara.

If that sole remaining seller had not been able to sign a deed, Barbara would have needed to start a court action to clear the title. That would have been expensive and time consuming.

The proper procedure for buying on land contract includes sellers signing and escrowing the deed to buyers with an attorney or a title company.


Several clients have called me about scams this month. Most are over the phone or the internet. Here are some red flags to look out for:

  • They want you to send money or gift cards.

  • They threaten you that they are law enforcement.

  • They ask you to cash checks or deposit checks.

  • They want you to verify an account number or your social security number.

If you are in doubt as to who is calling you, hang up with them. Then call them back on a phone number that you know is real. If they say they are calling from your credit card company, hang up and call back to the phone number on the back of your credit card. Likewise, find a number on your bank statement to call if they say they are from your bank.

A Tax Law You Need to Know

Most tax laws are designed to take money out of our wallets. However, some are designed to reduce what we pay in taxes. One of the best laws in the saving taxes category is under attack and there is talk in Washington at revoking this law.

If it is revoked, it will impact the estate plans of anyone that owns real estate, stock, bonds or mutual funds. That is just about all of you.

The law is called “Step-up in Cost Basis at Death”. Here is how it works:

  1. Assume you own real estate or have stocks, bonds or mutual funds in an account that is NOT a retirement account like an IRA or a 401k.

  2. Assume the asset cost you $100,000. That is your “cost basis”.

  3. Assume the asset is now worth $150,000.

  4. If you sold the asset, you would have a taxable gain of $50,000. You take the sales price, subtract the cost basis, and you get the taxable gain.

  5. If you “give” the asset to any person while you are alive, then their cost basis is whatever your cost basis was. If they sell for $150,000, then they have $50,000 in gain.

  6. If you leave the asset to someone who takes ownership on your death, then the “Step-up in Cost Basis on Death” rule comes into play. The one who inherits the asset is entitled to use the value on the date of your death as the cost basis for a sale. Therefore, the sales price is $150,000 and the step-up basis is $150,000. No gain. No tax.

Of course, the sale might not be precisely the value on your date of death. Assume it is sold 2 months later for $160,000. Then the gain is only $10,000. ($160-$150).

Where we see this benefit happen the most is where the decedent owned their home for 20 to 40 years. It may have cost $20,000 to $50,000 and now worth $100,000 or more. Under the current law, no tax is due.

The law may also change to require payment of taxes on death rather than later when the property is sold. Families will have to start paying taxes on inheriting mom and dad’s house. Some may have wanted to keep the house but would have to sell to pay the taxes. This is also likely to happen with cottages that have been in the family for years. Families inheriting a business or a farm may have to sell the property just to pay the taxes.

Many of you reading this have a ladybird and may be wondering how that works. The ladybird deed transfers title on death so those named in the deed will get a step-up in basis on death under the current law. They would not under the proposed changes.

Please consider contacting your Congressman to explain your feelings about any changes to this law.

There are a few nuances or exceptions to this rule that are too detailed for a brief overview (such as when you sell your own residence that the first $250,000 in gain is not taxable) but I have tried to present this summary that will make you aware of the problem.

Retirement accounts such as IRAs and 401ks have separate rules. Every dollar is taxable as ordinary income (not capital gains) when it is distributed from the account.


Our seminars remain in a state of flux due to the variance in the rules of the senior centers regarding social distancing. Please check our website for the latest information:

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Very truly yours,