A lien allows a creditor or bank to sell a mortgaged or collateral property in order to recoup losses when an individual fails to meet the loan specifications or payments.  A lien can be voluntarily placed through the signing of a mortgage/loan or by the government if taxes are left unpaid.

Mortgage

The mortgage is an interest in real estate that the borrower gives to the lender as security for performance of the borrower’s obligation to repay the debt. In Minnesota, a mortgage is a lien on the borrower’s property and the borrower retains title to the property. If the borrower does not repay the loan according to the terms agreed to by the parties, the lender may foreclose on the mortgage.

Issues addressed include:

• Warranties of Title: Except where disclaimed, sellers warrant that they have good and valid title to the goods being sold and that they may rightfully transfer title to the buyer.
• Payment of Taxes, Charges and Liens:  Properties may have unpaid taxes and liens against them.  It is important to thoroughly research a property before purchase.
• Environmental Representations and Indemnities:  Many times environmental issues can arise in business transactions and there are several phases of environmental due diligence when building.
• Insurance Requirements: When improving property, there is additional insurance needed to protect the property owner.
• Application of Insurance and Condemnation Proceeds: When a public entity exercises its powers of eminent domain over a property owner, the property owner wants to get as much as possible from the sale.
• Defaults: With mortgage defaults reaching record levels, it is important that if you are a property owner who has been served with a default notice to contact us immediately for assistance.

Mechanic’s Liens

A mechanic’s lien is a document that guarantees payment for contract services or improvement services on a piece of property.  If a bill is left unpaid, a contractor can sign a mechanic’s lien which will ensure payment.  A mechanic’s lien gives incentive to the property owner to pay the contractor and is a prerequisite for a foreclosure filing.  By placing a mechanic’s lien on a property, the encumbrance makes it difficult for the property owner to sell or re-finance the property without first paying the lien.

Contractors, as well as subcontractors and suppliers who have a contract with a general contractor, can file a mechanic’s lien.  A lien claimant must file a Statement of Lien with the county recorder within 120 days of the completion of work.  A copy must be personally serviced or sent by certified mail to the owner or his/her agent.  The lien claimant must bring a legal action to enforce the lien within 1 year of the date of the last labor, skill or material provided under Minnesota Statute Section 514.12.

In order for a contractor or subcontract to claim a lien, a contractor must provide the form language under Minnesota Statute Section 514.011 advising the property owner of his rights and the possibility of a lien.

The property owner has the right to demand the lien holder furnish an itemized account of the lien, the total amount due and the full name and address of the lien claimant within 15 days of the completion of the contract.

Mechanic’s liens have complicated rules under Minnesota law.  At Klun, we can assist you navigate these laws, whether you are the contractor or property owner.  Do not wait to call us if you have been served with documents.  Call us today to schedule an appointment to discuss your matter.

Klun Law Firm can help you through your next real estate transaction. Call us today.

At Klun, our Minnesota Estate Planning Attorneys can help you spell out your wishes as to what to do with your assets after your death. A will is the document that explains what you want to do with your assets upon death. The “testator” is the person for whom the will is made. The testator declares in his or her will whomever they want to administer the will. That person is known as the “executor.” The executor uses the will after the death to make sure assets are placed where and with whom the testator wishes. Unfortunately, simply having a will in place won’t help you avoid probate.

At Klun, our knowledgeable attorneys can help you put all the right documents in place to protect you and your assets.

At Klun, our experienced Minnesota Estate Planning Attorneys can help you draft a trust from scratch, to protect your assets and your loved ones.

We can also review a trust that has already been created and help you update it and administer the trust to beneficiaries when needed. We can help you to decide between an irrevocable trust and a revocable trust. An irrevocable trust allows you to transfer ownership of assets on a permanent basis. An irrevocable trust helps to protect assets from your creditors and avoid certain taxes and the probate process entirely upon death. Our knowledgeable attorneys can assist you through drafting and reviewing a trust.

At Klun, Our Estate Planning Attorneys and Lawyers can help your family get through the difficult process of probate after a death in the family. Filing probate paperwork in Minnesota starts with the Application for Formal or Informal Probate. We can help you with the process if you are appointed as the personal representative by your family member.

Additionally, we can assist you with notifying creditors, inventorying property and distributing the estate. We will help you every step of the way so you can concentrate of healing from your loss while we take care of the paperwork and court appearances.

An individual can set up a Power of Attorney document which allows an agent to make financial and legal decisions if the individual becomes incapacitated. The agent will have the authority to make medical decisions in the event the individual is unable to make such decisions for him or herself. In choosing an agent, remember that the agent should be a family member or friend that the principal trusts to follow his or her instructions.

If you are interested in having a Power of Attorney document drawn up, contact Klun Law today. We are skilled and experienced in elder law matters.

The Lake is truly a magical place. For years or perhaps decades, family, friends and loved ones have gathered at the family cabin to build and share memories that span generations. The fun-filled campfire conversations are priceless. Of equal importance, are the conversations spent discussing the future of the family cabin.

If your goal is to pass on the family cabin to the next generation, planning ahead is crucial.  Together you can determine how the cabin will best fit into the family’s future. For example, perhaps not all family members are interested in continuing to own the cabin or perhaps not all family members have the financial resources to maintain the cabin. Inevitably, part of the communication process involves the preparation of an estate plan. The plan must be tailored to fit your family’s needs. A cabin trust just one estate planning tool that can be utilized to help maintain and pass on the family hideaway. For example, specific trust provisions could provide future instruction to your family on important issues such as taxes, maintenance, insurance, ownership and a potential sale.

Through open, honest communication and with the right planning, you and your family can ensure the family cabin remains a source of joy and respite for your family. The preparation of an estate plan should be thought of as a priceless preventative tool. Talk with your family today and take that next step of developing an estate plan that protects both your family and your private hideaway.

Setting the Stage for Future Generations to Keep the Cabin

Problems frequently arise when the “do nothing” plan results in equal undivided interests in the adult children as tenants in common, whether they acquired title in that fashion as a result of lifetime gift, or inheritance by Will, Trust, or intestate succession.  The Attorneys at Klun Law Firm will help you navigate the estate planning waters.  For over 30 years, we help helped thousand of families pass on the family cabin.

The Usual Problem: Unequal Use, Maintenance, and Payment of Costs

The common situation is where three adult children, for example, inherit the cabin. One pays the majority of the costs, and the other two will justify that to themselves and to each other by referring to the fact that this adult child has the best ability to pay. A second adult child is a handyman, and is constantly at the lake fixing things and keeping the place maintained. The other two children may justify that by stating that this adult child is the best at doing this.  A third adult child is an avid fisherman, and doesn’t chip in much at paying the expenses (he’s put too much money into his expensive boat) or helping out with maintenance (it takes time away from being out on the water, and that’s what it’s all about, anyway). Layered on top of this is that the cabin can’t accommodate all three of them with their families at once. They need some sort of lottery system to address the use. Add to the facts that child one lives out of state, loves the place dearly, and really wants exclusive use of it during July 4th week, and we have the formula for disaster. Unfortunately, cabins have been sold in many of these situations.

Other Concerns

There are a number of other issues that also arise if this is considered in a long-term perspective:

• What if one of the adult children dies?
• Is the one-third interest an available asset if one child goes to a nursing home?
• What if one of the one of the adult children has a financial problem: bankruptcy, judgment, tax lien, or child support arrearage?
• How to handle major repairs or improvements to the property?

Cabin Trusts

One answer to the problem, probably from an estate planning attorney, is to use a trust agreement. They may include a life estate to an aging parent or parents, and leave ownership in the trust itself until the last of the adult children dies. At that point, the trust can distribute to the grandchildren of the settlor. To avoid a violation of the rule against perpetuities, the trust probably shouldn’t continue beyond the generation of the adult children.

Advantages of Cabin Trusts

• Familiarity. Trusts are entities that estate planners use all the time. Existing trust forms can be modified to work.
• Superior device for distribution. Trusts are true estate planning entities, and probably work best at the distribution to the right people whenever they terminate.

Drawbacks of Cabin Trusts

• No perpetual existence. They don’t have perpetual existence, because the rule against perpetuities applies.
• They aren’t easy to amend. They are either irrevocable in the first place if they are intended to shelter from nursing home costs, or else they become irrevocable once the aging parent/settlor dies.
• Shares can’t be changed. The shares can’t be changed over time to reflect the unequal contribution of labor or money or the unequal use of the property.
• Distribution can’t be changed. The ultimate payout provisions are probably cast in stone. About the only flexibility that can be easily built in is a general or special power of appointment.
• Who is the trustee? This can be a true dilemma. Are all three adult children named as co-trustees, and a majority vote sufficient to bind the trust? Is one child chosen? Is there any power of removal?
• Difficulty in fulfilling fiduciary duties owed to remainder beneficiaries. The adult children are essentially lifetime beneficiaries of the trust. If they also serve as trustee(s) and make certain decisions benefitting them individually and negatively affecting the remainder beneficiaries, their fiduciary duty may have been breached.

Using a Business Entity

Using a business entity seems to make some sense to eliminate some of the above problems.

Advantages of Using a Business Entity

• Perpetual existence. An entity with perpetual existence solves a number of the problems.
• Ability to amend controlling documents. The ability to amend the controlling documents over time is very appealing.
• Ability to alter the shareholders and number of shares. The ability to alter the number of shares is probably something that the family will want or need as time goes by.
• Transfer restrictions. Just as any other small business entity, one established for ownership of the cabin can contain transfer restrictions intended to accomplish several goals: preventing sale to an outside party without agreement; valuation and payment provisions in case of a bona fide sale; and valuation at lowest justifiable level and payout provisions at the slowest possible rate in case of divorce, bankruptcy, or other involuntary transfer.

Disadvantages of Using a Business Entity

• Legal and Accounting Fees. The costs of establishing the entity and maintaining it are new expenses the family hasn’t had in the past.
  • A corporation or LLC will need corporate minutes and will need to generally comply with the formalities of any small incorporated business to maintain its integrity as a separate legal entity. If a business entity is used to make the cabin an unavailable asset for Medical Assistance purposes, this should be taken seriously by both the attorney and the family.
  • If any income is recognized, there will be additional tax returns. The entity will need an employer’s identification number from the IRS. From a tax perspective, it is probably cleanest to recommend an entity that is a pass through entity, reporting its income, deductions, and credits to the shareholders on K-1 schedules without any change in character.
• Need for a “Business Purpose.” Minnesota’s business entity statutes require a business purpose. If an entity is scrutinized by the IRS in a tax audit, it will need a business purpose. Query whether this is met by owning real estate for future appreciation in value. Payment of rent by family members should fulfill the requirement.
• Loss of Potential to Exclude Capital Gains on Sale. Had the cabin been kept in mom and dad’s names individually, they could have potentially made it their principal residence within the tax code definition to exclude gain on sale. The 1997 amendment to the tax code permits exclusion of up to $250,000 of gain by an individual or $500,000 by a married couple on the sale of their principal residence. The property must have been their principal residence for two out of the last five years. IRC §121.
  • Many Minnesota snowbirds have sold their lifelong family home (excluding the gain on the sale under §121) and used the proceeds for “fixing up” the cabin and purchasing or renting a place in the sunbelt for the winter months. If the cabin is later sold, the gains on its sale can also be excluded under §121 if the “two of the last five years” test is met. The exclusion is available to the taxpayer as often as every two years §121(b)(3). Short absences, such as two-month vacations, don’t interrupt the period of use, even if the property is rented out during those times. Reg. 1.121-1(d). Considering that most cabins have considerable gains against them, this can be the loss of a significant tax advantage.
• Loss of Potential to Receive Minnesota Homestead Real Estate Tax Exemption. If mom and dad sell their house, move to the cabin as their primary residence, and hold title individually, the cabin should qualify for the Minnesota homestead real estate tax exemption. Minn. Stat. §273.13, Subd. 22. Changing ownership to a business entity will result in loss of the exemption because businesses don’t qualify. Given the difference in rates, this can be a big drawback that should be discussed with clients and memorialized in a letter to avoid finger pointing later.