FISHER'S LAW OFFICE NEWSLETTERS

Newsletter
Winter 2002
Fisher's Law Office

Welcome to the NEWSLETTER of Fisherís Law Office, providing you with legal information you can use in your everyday life. In this issue, we discuss ways in which clients can survive tough economic times. If you have questions about what you read in this newsletter, please call us today.

1. Basics of FDIC (Federal Deposit Insurance Corporation)

Congress has created the FDIC, an entity that purportedly insures bank accounts. (See the Federal Deposit Insurance Act, 12 U.S.C. ß1811(a)). Although it may take years for you to get your money back, FDIC bank accounts are insured up to $100,000.00. Be aware that the following accounts are not FDIC insured and do not provide any guarantee of repayment should your bank or financial institution fail:

  • money market accounts
  • mutual funds
  • bonds
  • stock
  • notes
  • brokerage accounts
  • mortgage backed securities
  • other financial arrangements

Moral to the story? If you absolutely need the money you are investing at some point in the future, make sure that you put your money into a bank that has a high rating and is FDIC insured.

2. How can you check the financial solvency of your bank?

Bankrate.com has a rating service that ranks banks. In general, you should always put money into banks which have the highest rating. Be warned that if a depression hits the United States, the banking system will be under tremendous stress and many, many banks will fail. If this happens, it may take years for you get your money back even if it is from an FDIC insured account. Therefore, do not put money into any bank accounts and banks that have less than the highest rating.

3. How should I handle debt during times of economic depression and recession?

Unlike the inflationary 1970ís and 1980ís, dollars that are used to repay debt at this time are worth as much as the money

you borrow. The reason for this is that inflation is very low or even declining. Some economists even say that the U.S. is suffering from "deflation" in which prices continually decline. This phenomenon is a fact of life in Japan today. What this means is that money in the future is worth more in real terms

than money in the present and money that is borrowed today will be more difficult to pay back. You should therefore be very cautious at borrowing money or charging on credit cards.

4. If inflation and high interest rates afflict the economy, will my ten-year U.S. Treasury Bonds go down in value?

Yes. As the graph below shows when interest rates go up, the market value of bonds goes down. Moral? long term government bonds can be risky investments.

5. What are some ways I can protect myself against the effect of depression and recession?

Here are a few basic tips on protecting yourself against economic calamity.

(a) Review all of your investments very carefully to make sure that they are in a safe place. For example, bank accounts are more safe than money market funds and stocks. Try to pay down as much debt as you can. In this way, you will be more able to weather the economic storms. Remember that the last depression in the United States lasted from 1929 until the beginning of World War II. You should therefore be able to weather an eight to ten year period of economic decline.

(b) Save as much money as you can in case you or your spouse loses your job.

(c) Develop a "side business" in which you have a source of income besides your regular earnings that you can rely on to supplement your income or serve as your primary source of income if you lose your job.

(d) If there is a teenager in household, explain to the teenager the situation and see if you can convince your teen to get a job and begin saving money. The teen can use the money saved to attend college or trade school or pay for extras.

(e) If you have any real estate other than your house, you may want to consider selling it now. Real estate has done very well even as the stock market in the U.S. has declined. However, some economists believe that the real estate market is in the midst of a "bubble". When the bubble breaks, the price of housing and other real estate will collapse or fail to appreciate as much as in the past.

Moral: Now might be the best time to sell real estate holdings.

6. What about my house? Is it a good investment?

Housing has appreciated substantially in the last ten years in the United States. However, in measuring the net increase in the value of your home, consider the following:

  • Be aware that real estate is very expensive to hold. There are maintenance costs, insurance, flood insurance, and improvements that most people need to make to maintain the value of their homes.
  • Interest expense and real estate taxes are big expenses that reduce real estate gains, even after considering the deductibility of mortgage interest and real estate taxes.
  • Most economists believe that you can count on spending between one and two percent of the value of your home per year to maintain its value.
  • Once these costs (taxes, insurance, interest, maintenance, etc.) are subtracted from the appreciation, real estate is often not as good an investment as one might initially think.

On the other hand, if you own a home that has substantially appreciated in value and you sell it, you probably will not be liable for income taxes as the first $250,000.00 of gain on a personal residence is not taxable to a single person and the first $500,000.00 of gain on the sale of a primary residence is not taxable to a married couple. This tax benefit has helped underpin the real estate market in the United States.

7. What about inheritance taxes? Should I worry about money I inherit?

For the vast majority of Americans, the estate tax has been effectively repealed. In 2002 and 2003, the amount you can inherit or receive as a gift without paying gift tax or estate tax is $1,000,000.00. This amount will increase until 2010 when the amount will be an unlimited amount. In 2011, you can inherit up to $675,000.00 without paying estate tax.

8. What should I do to begin my estate plan?

To plan your own estate, you should make a list of all of your life insurance, real estate, investments and other assets once a year to determine whether or not you have an estate tax issue. If your estate is under $1,000,000.00 in 2002 and 2003, your heirs do not have to pay estate tax and your estate passes tax free to your loved ones. The next step is to write a Will. Fisherís Law Office helps clients write simple Wills for a modest fee.

9. Iím thinking about refinancing my house. Is this a good idea?

In 2000 through 2001, Americans borrowed four trillion dollars in equity from their homes. Some of the money ended up being used in home improvements but most of it was spent on immediate consumption. The good news is that the economy benefited from all of the spending. The bad news is that homeowners now must spend the next 15 to 30 years paying back the money they borrowed over the last two years. Here are some refinancing tips. If all of the following apply to you, you might consider refinancing your home mortgage:

  • The interest rate on your mortgage will decrease by greater than one or two percent.
  • Your refinancing will not extend the time of the loan (for example, if you have 15 years left on your mortgage, your new loan will be paid off in 15 years).
  • You are not "cashing out" money. This means that when you refinance, you are not increasing the debt balance on your home by borrowing more money. You should not "cash out", that is take out money from the value of your home when you refinance. This defeats the entire purpose of refinancing and decreases your hard earned home equity!
  • Your closing costs are small. Warning! If a mortgage broker proposes to charge you a fee to find loan money, donít do it. Go to a bank. Always look closely at "closing costs" before you consider refinancing.
  • You plan to stay in your home for a number of years.
  • You are able to deduct the interest you pay from your United States federal income taxes. (Be aware that unless the amount of interest expense is greater than the "standard deduction", your tax bill will not decrease as a result of borrowing money on your house.)
  • You should never refinance and extend your payments into the future past your point of retirement. Always plan to have your house paid off before you retire.

Refinancing warning: Be aware that refinancing involves a new appraisal of your home. If your home has increased in value, your homeowners insurance will increase, often by a substantial amount.

10. Are you thinking about selling your business?

Here are a few helpful hints of things to consider before you sell a business.

(a) Make sure that the buyer has enough money to pay for the business. Do not accept a small down payment and expect the buyer to pay off the debt. You may not get your money.

(b) Tell key suppliers that you are no longer associated with the business. Also, make sure that no suppliers are billing you personally for the supplies of your business. These communications should be with the buyerís consent.

(c) You should disclose everything to a buyer. Do not put yourself in a situation where a buyer wants to sue you.

(d) Make sure that all debts of the business are paid off and that all taxes are paid before you sell the business.

(e) Make sure that you inform the United States Internal Revenue Service, the Florida Department of Revenue and all other governmental agencies that you are no longer associated with the business.

(f) Have your tax number for the business changed so that you are no longer associated with the "EIN" (employer identification number) of the business. In this way, should taxes for payroll or social security not be paid, you will not be billed personally as a "responsible person" .

(g) Make sure that if you sell a corporate entity, you have resigned as a corporate officer in the books and records of the Department of State in Tallahassee, Florida. In this way, you put the world on notice that you are no longer associated with the business.

(f) If at all possible, you may want to consider working in the business for a few months after you sell it in order to help the buyer during the transition period. However, donít take on a management role or create expectations that you will continually help the new buyer with the business.

(g) Be careful in agreeing to covenants not to compete.

(h) Always see a lawyer to help you write up a contract for the sale of the business and for the transfer of the business assets or stock in the business to the buyer. The sale of the business is a very serious matter and one should not scrimp on attorneyís fees for such transactions.

11. If you buy a used car in Florida, you should be very cautious.

Here are a few things that you should do to protect yourself when you buy a used car in Florida.

(a) Make sure that you transfer the car into your name at the tag agency on the day you give the money. Preferably, the transaction should take place at the tag agency.

(b) Have the person selling the car sign the title over to you in the presence of a witness at the tag agency.

(c) There is no requirement to sign titles in the presence of a notary so you should always get a copy of the driverís license of the seller and verify that the name of the seller is the same as the name as it appears on the title. Never purchase a car from someone who holds an "open title".

(d) Make sure there is no lien against the car you are buying and if there is, get a lien satisfaction from the lender. Donít rely on a lien satisfaction "stamp" on the title. Contact the lienholder directly and get a written confirmation that all liens on the car are paid. Make sure that the lien satisfaction is on file with the State of Florida Motor Vehicles Department.

(e) Do not assume that going to a car dealership will save you from any of the hassle associated with buying a car. You should be just as vigilant if you are dealing with a car dealer as you would in dealing with an individual.

(f) Be careful about stolen vehicles. You may want to contact the police and verify that any cars you are buying are not stolen or have been reported stolen.

(g) Always pay with a personal check and not a cashierís check or cash so you can stop payment on the check if it turns out the car is not properly titled into your name or if the seller is committing fraud.

(h) Always have an inspection done on any car you buy by a reputable mechanic before you buy the car.

(i) Always verify the value of a car online before you buy it. There are many online services that will value cars and give an approximate value of cars such as KBB.com.

(j) Never be rushed into buying something that you are not sure you want to buy.

(k) Purchasing a car is a big decision and you should never make a decision of this nature quickly. If at all possible, do not buy a new car as new cars decline in value by over 30% the moment you drive them off the parking lot.

(l) Never assume that there is a right of rescission for car purchases. In general, there is no right of rescission (a waiting period that allows you to cancel the purchase) except for certain home mortgages and other contracts. Good luck, youíll need it.

12. Are you a new resident in Florida or know someone thatís recently moved to Florida?

Make sure they do the following when they move to Florida:

(a) Get a Floridaís driverís license. It is against the law to work or have a child in a Florida school and not have a Florida driverís license.

(b)Transfer all vehicle registrations to Florida.

(c) Register to vote in Florida.

(d) Register utilities in your name as soon as possible.

(e) Begin paying taxes and filing your tax return from Florida. Other states have a personal income tax but Florida does not. It is therefore advantageous to be a Florida resident and the earlier you file a tax return with the U.S. federal government from Florida, the earlier you are excused from being required to file a tax return in your home state.

(f) Consider filing a sworn statement establishing your domicile in Florida under Florida Statutes, Section 222.17.