Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 5, 1993 TAG: 9304020464
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
STRANGE DEED MAY NOT YET BE RESOVLED
Q: Enclosed is an old deed for property that consists of 158 acres, a house and barns. In 1934, my father deeded it to my mother and his "heirs." My mother lived in the house and retained the right to the property during her lifetime.My mother died last year. My brother and I, as the then-living heirs, have sold the property. Our question is when did the property become ours? Is it an inheritance or a gift? How would it be taxed?
A: The deed gave your mother the property contingent on her remaining married to your father throughout his lifetime. Presumably, that turned out to be the case because she seemed to have inherited the property. He said he deeded the property to her "in consideration of love the affection," but he gave her the land in fee simple or direct ownership.
Your mother held more than a life estate. Your father seems to have given the property to her outright subject to her continued status as his wife or widow.
Michael K. Smeltzer, a lawyer who is a real estate specialist with the firm of Woods, Rogers and Hazlegrove, described the old deed (dated in 1934) as very strange. That's because it gave ownership of the property to your mother, yet the preamble says that the deed was made between him, on one hand, and both his wife and his heirs on the other side. And it was conditional, more like a will than a deed.
Smeltzer said the property is your inheritance, not a gift to you. It became your property when your mother died last year. The land would be subject to estate tax if your mother's estate was worth more than $600,000. This was the responsibility of the executor or administrator of your mother's estate.
The individual tax basis for you and your brother, he said, is the value of the property as of the date of your mother's death.
Because she died very recently, you presumably sold it at just about that time and with that value. If so, you would owe little or no tax on the sale. You should have an appraisal as part of the estate settlement for purposes of comparison with the sales price.
But Smeltzer said the unusual preamble to your father's deed could conceivably open the door to trouble for you and your brother.
You say that you and your brother are your mother's only then-living heirs. Who were your father's heirs in 1934 when the deed was written? Did your father have any other children who have since died? If so, did they leave any children (your parents' grandchildren)?
Children of any of your siblings who died before your mother did might possibly lay a claim to a share of the estate if she had no will leaving the land to you.
> The truth of the matter
Q: When I applied to refinance the outstanding balance on my home mortgage at the National Bank of Blacksburg, I was given a proposed agreement calling for a new loan of $11,322.83 to be repaid over 5 1/2 years at an interest rate of 9.5 percent. But when I went back, the bank gave me a "truth-in-lending" disclosure statement that showed an annual percentage interest rate of 10.188 percent. I did not understand the reason for this difference in the rate. The 10.188 percent is a much higher rate, so I have decided to finance through a home equity loan with a rate of 7 percent.
A: F. Brad Denardo, executive vice president of the National Bank of Blacksburg said that the face amount of $11,322.83 included a $250 processing fee that was capitalized as part of the loan.
The truth-in-lending disclosure shows the amount of money to be financed as $11,072.83, which represents the amount of the mortgage less the $250 fee. The $250 fee has been shifted to the section for the "finance charge," which then totals $4,691.49. Subtraction of the processing fee from the amount to be lent and its addition to the finance charge boosted the annual interest rate to 10.188 percent.
Denardo said 10.188 is the annual percentage rate, while 9.5 percent is what he called the stated rate.
There is another discrepancy between the two forms you sent. The proposed agreement calls for monthly payments of $179.14 starting in April 1993 and ending in October 1998 "at which time the indebtedness is to be paid in full." That is a period of five years and seven months.
The truth-in-lending form requires 88 payments of $179.14, a period of more than seven years.
The home equity loan at 7 percent represents a very good deal for right now, but it almost certainly carries a floating interest rate that is tied to the prime. If interest rates rise over the next few years, you will be be forced to make higher monthly payments to cover the increased interest. You should, therefore, pay off the loan as rapidly as possible.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.