siddharth's space

http://www.avvo.com/legal-guides/ugc/how-should-a-married-couple-hold-title-to-real-estate-in-california

What are the options for holding title to real estate in California for Married Couples
As a married couple in California, there are numerous ways that you can hold title to your real estate, which include but are not limited to, Joint Tenancy, Community Property, Community Property with Right of Survivorship, and in trust. Most of the time, the best way to hold title will be in a form which is Community Property. This will be discussed below.

So why are so many properties held by married couples as Joint Tenancy?
Joint Tenancy is known as the poor persons will. Title automatically passes to the surviving joint tenant upon death of the other tenant. It is simple and effective. The origin of the use of this form of title by so many can be traced to real estate agents. At the time of buying properties, most deals are written to take title in this form. Most buyers do not consult attorneys to determine the form of title to hold when making the purchase.

Why is Community Property a more favorable way of holding title?
When you hold property in community property, under current law, the property receives a full step up in basis to fair market value at the date of death. What does this mean? The survivor is only responsible for paying taxes on any gain from the date of death forward. If they sold the property the day after the death, they would not have to pay any taxes on any of the capital gains that accumulated prior to death. However, if the property is held as joint tenancy only half of the property steps up in basis, and the survivor would have to pay taxes on half of the accumulated gains prior to death. Therefore, holding property in a form of community property can have significant tax advantages.

How do I take title as community property?
You should seek an attorney to assist you with this process. You should not take title simply as community property, because unlike joint tenancy, there is no automatic disposition of the property upon death and a probate would be required. However, California has a relatively new form of title that will allow you to hold title as community property and have an automatic disposition at death, you can hold title as Community Property with Right Of Survivorship. Another way to hold title is in your trust which designates the property as community property. Either form of designation as community property will allow you to receive a full step up in basis upon death.

http://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html

If you qualify for the exclusion, you may do anything you want with the tax-free proceeds from the sale. You are not required to reinvest the money in another house. But, if you do buy another home, you can qualify for the exclusion again when you sell that house. Indeed, you can use the exclusion any number of times over your lifetime as long as you satisfy the requirements discussed below.
If you’re a homeowner this is the one tax law you need to thoroughly understand.

The Two Year Ownership and Use Rule

Here’s the most important thing you need to know: To qualify for the $250,000/$500,000 home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. Your home can be a house, apartment, condominium, stock-cooperative, or mobile home fixed to land.
If you meet all the requirements for the exclusion, you can take the $250,000/$500,000 exclusion any number of times. But you may not use it more than once every two years.
The two-year rule is really quite generous, since most people live in their home at least that long before they sell it. (On average, Americans move once every seven years.) By wisely using the exclusion, you can buy and sell many homes over the years and avoid any income taxes on your profits.
One aspect of the exclusion that can be confusing is that ownership and use of the home don’t need to occur at the same time. As long as you have at least two years of ownership and two years of use during the five years before you sell the home, the ownership and use can occur at different times. The rule is most important for renters who purchase their rental apartments or rental homes. The time that a purchaser lives in the home as a renter counts as use of the home for purposes of the exclusion, even though the renter didn’t own the home at the time.

If You are Not Living in the Home

To qualify for the home sale exclusion, you don’t have to be living in the house at the time you sell it. Your two years of ownership and use may occur anytime during the five years before the date of the sale. This means, for example, that you can move out of the house for up to three years and still qualify for the exclusion.
This rule has a very practical application: It means you may rent out your home for up to three years prior to the sale and still qualify for the exclusion. Be sure to keep track of this time period and sell the house before it runs out.

The Home Must Be Your Principal Residence

To qualify for the exclusion, you must have used the home you sell as your principal residence for at least two of the five years prior to the sale. Your principal residence is the place where you (and your spouse if you’re filing jointly and claiming the $500,000 exclusion for couples) live.
You don’t have to spend every minute in your home for it to be your principal residence. Short absences are permitted—for example, you can take a two month vacation away from home and count that time as use. However, long absences are not permitted. For example, a professor who is away from home for a whole year while on sabbatical cannot count that year as use for purposes of the exclusion.
You can only have one principal residence at a time. If you live in more than one place—for example, you have two homes—the property you use the majority of the time during the year will ordinarily be your principal residence for that year.
If you have a second home or vacation home that has substantially appreciated in value since you bought it, you’ll be able to use the exclusion when you sell it if you use that home as your principal home for at least two years before the sale.

$500,000 Exclusion for Married Couples

There are certain additional requirements you must meet to qualify for the $500,000 exclusion. Namely, you must be able to show that all of the following are true:
you are married and file a joint return for the year
either you or your spouse meets the ownership test
both you and your spouse meet the use test, and
during the 2-year period ending on the date of the sale, neither you or your spouse excluded gain from the sale of another home.
If either spouse does not satisfy all these requirements, the exclusion is figured separately for each spouse as if they were not married. This means they can each qualify for up to a $250,000 exclusion. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. For joint owners who are not married, up to $250,000 of gain is tax free for each qualifying owner.
If your spouse dies and you subsequently sell your home, you qualify for the $500,000 exclusion if the sale occurs within two years after the date of death and the other requirements discussed above were met immediately before the date of death.

Also see:
http://pubs.acs.org/subscribe/archive/tcaw/11/i03/html/03pers.html
http://www.cpa-services.com/special_sal.shtml
http://charliedunn.com/_Sellers_Tips/Capital_Gains_Exclusion_for_Homesellers.htm

http://julianalee.com/buying/joint_vs_comm.htm

Holding title as joint tenants or as community property involves a multitude of issues to be dealt with. Given that, let me narrow the issues to those two distinguishing features between taking title as joint tenants or community property (i.e., death and tax benefits) that most people are concerned with.

When title is taken as joint tenants and one spouse dies, the surviving spouse automatically receives the property. This is called a right of survivorship. (Although the property does not go through any probate proceeding, the surviving spouse must still file an affidavit of death of joint tenant to remove the deceased’s name from the deed.)

When title is taken as community property, however, and one spouse dies, there is no right of survivorship and the surviving spouse does not automatically receive title to the property. If the deceased spouse died without a will, the deceased spouse’s interest in the community property would go to the surviving spouse. If there was a will, the deceased spouse’s interest would be handled as outlined in the will. In other words, each spouse has ownership of their half of the community property and can leave it by will to their surviving spouse or any other third party.

One way of looking at the death scenario is that joint tenancy has more certainty and community property has more flexibility.

The tax consequences have been a little more blurred as of late but basically the issue is as follows:

If property is held as joint tenants, the tax basis of the deceased spouse’s 1/2 interest would be “stepped-up” to the fair market value at the date of his/her death. The tax basis of the surviving spouse’s 1/2 interest would remain at its original basis.

For example: Husband and Wife purchased their house for $100,000 with each spouse’s tax basis at $50,000. At the date of Husband’s death the property’s fair market value was $200,000. Since they held the property in joint tenancy, Wife automatically received Husband’s 1/2 interest upon his death.

Husband’s 1/2 interest tax basis (originally $50,000) is “stepped up” to the fair market value at his death (i.e.,$100,000). Wife then has property worth $200,000 with a tax basis of $150,000 (her original $50,000 basis plus her deceased husband’s stepped up basis of $100,000). If the property were sold for $200,000, there would be $50,000 of taxable gain.

If title is taken as community property, however, the entire property receives a “stepped-up” basis to the fair market value at the date of one spouse’s death.

For example: Assume the same $100,000 purchase and $200,000 value at date of death and further assume Husband willed his interest to Wife. Wife’s original $50,000 basis gets stepped-up along with Husband’s original $50,000 basis to the current $200,000 fair market value. Wife then has property worth $200,000 with a basis of $200,000. If the property were sold for $200,000, there would be no taxable gain.

source: http://www.ehow.com/facts_7627530_washington-state-right-survivorship-law.html

Tenants in Common
In Washington state, a domestic partnership or married couple are considered to hold their property as tenants in common unless they specify it as a joint tenancy. All tenants in common have equal rights to possess the property, but they do not have the right of survivorship. Right of survivorship only comes with joint tenancies.

Joint Tenancy
A joint tenancy occurs when two or more co-owners who have the same size shares in the property are given possession by the same document. This document must clearly state that the agreement is a joint tenancy or it will be assumed that the owners are tenants in common.

Bank Accounts
One exception to the joint tenancy law is bank accounts. In order for a bank account to have the right of survivorship, it must be opened as a “Joint Tenancy with Right of Survivorship” account and not just as a “Joint Account” or a “Joint Tenancy” account.

source: http://www.nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter6-5.html

If you live in a community property state, you and your spouse (or registered domestic partner) may be able to avoid probate by taking title to property as “community property with the right of survivorship.” If this option is available to you, it’s likely to be a better choice than joint tenancy. (Tenancy by the entirety, another probate-avoiding way for couples to hold title, is not available in community property states.)
States With ‘Community Property With Right of Survivorship’
Alaska
Nevada
Arizona
Texas
California
Wisconsin
Community Property Basics
Community property is a legal classification, imposed by law—it applies to certain property no matter how you hold title to it. If you live in a community property state, most property acquired by you or your spouse during the marriage is automatically community property, unless you agree otherwise. Your earnings, for example, are community property, and so is everything you buy with those earnings.
There are exceptions. Property inherited by one spouse, for example, is not community property. And spouses may sign an agreement stating that their earnings or other property are not community property.
Survivorship Community Property
“Survivorship community property,” by contrast, is a way that couples can hold title to specific assets. In that way, it’s like “joint tenancy” or “tenancy by the entirety.” A couple buying a house, for example, can state on the deed that they’re taking title to the property as survivorship community property.
How Survivorship Community Property Avoids Probate
Holding property as survivorship community property has certain consequences, the most important of which are that:
when the first spouse or partner dies, the whole property automatically belongs to the survivor, and
the property does not need to go through probate to be transferred to the survivor.
If you hold title as “community property with right of survivorship,” then when one spouse dies, the other will automatically own the community property. No probate will be necessary to make the transfer. The process of transferring title to the surviving spouse will be simple. The exact steps depend on the type of property, but generally all the new owner has to do is fill out a straightforward form and present it, with a death certificate, to whoever keeps the ownership records: a bank, state motor vehicles department, or county real estate records office.
EXAMPLE: Michael and Marla, who live in Nevada, took title to their house as “community property with right of survivorship.” After Michael dies, Marla takes his death certificate to the office of the county registrar of deeds. She fills out and files the form provided by that office, which asks her for some basic information about her late husband and the property. When the form is recorded (filed) by the registrar of deeds, it’s as good as a probate court order would be as proof that Marla now owns the property.
Creating or Removing Survivorship Community Property
To turn property into right-of-survivorship community property, you simply need to put the right words on the title document.
Adding the Right of Survivorship to Community Property
State
Couples take title to property as:
Statute
Alaska
“survivorship community property”
Alaska Stat. 
§ 34.77.110(e)
Arizona
“community property with right of survivorship”
Ariz. Rev. Stat. 
§ 33-431
California
“community property with right of survivorship”
Cal. Civ. Code 
§ 682.1
Nevada
“community property with right of survivorship”
Nev. Rev. Stat. 
§ 111.064
Wisconsin
“survivorship marital property”
Wis. Stat. Ann.
§§ 766.58, 766.60
Spouses are free to change their minds and remove the survivorship provision later, but it must be done in writing. They should prepare a new title document that does not include the right of survivorship.
EXAMPLE: When Liz and her husband Fernando bought their vacation house, they directed the title company to state on the deed to the property that they would own it as community property with right of survivorship.
Years later, they decide that they want Fernando’s son, Robert, to inherit his father’s half-interest in the house. Liz and Fernando sign and record a new deed, changing the way they hold property to plain “community property.” In his will, Fernando leaves his half-interest to Robert.
A spouse may also be able to act alone to revoke a right of survivorship. In Nevada, a spouse can wipe out the right of survivorship by transferring his or her half-interest in the property. And in Arizona, to remove the right of survivorship from a piece of real estate, either spouse can file a sworn statement, called an “affidavit terminating right of survivorship,” with the county recorder in the county where the real estate is located. The state statute sets out what information the affidavit must contain.

original source: http://seekingalpha.com/article/403871-warren-buffett-and-gold-follow-what-he-does-not-what-he-says

The so-called “Oracle of Omaha”, billionaire Warren Buffett, has been making negative comments about gold for many years. Most recently, in his annual letter to Berkshire Hathaway (BRK.A,BRK.B) shareholders, he indulged in a long dissertation about gold, writing about investments he claims that the company never makes:

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century… This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future…The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative.

Just a few days later, the world has learned that a rather inconsistent event is about to take place. Mr. Buffett is expanding the Richline unit of Berkshire Hathaway by making a significant investment in the future of gold and other precious metals. Richline is buying the precious metals operations of Cookson Group, PLC (CKSNF.PK)

The purchase of jewelry, medallion and gold bar producing factories may not be inconsistent with Mr. Buffett’s stated dislike of gold. Jewelers tend to complain about high precious metals prices. When the precious materials cost more it cuts into profit margins until buyers get accustomed to the higher prices. But Buffett is making a very long term investment into the idea that gold is not like copper, iron, or nickel.

Buffett is paying tens of millions of dollars for a company that depends upon the intense human fascination with and desire to possess the noble metals that last forever. The same characteristics that makes gold, silver and platinum so useful for jewelry – small size, ultra-high value, beauty, and non-tarnishability – also cause them to be useful as a store of value.

So, is the “Oracle” having second thoughts? Has he finally recognized that there is something very special about precious metals? In the financial world, it is always very important to “follow the money”. It is much more useful to know what your brokerage house is doing with its own money, rather than listening to what it says you should do with yours. The same, it seems, is true with financial “wizards” like Warren Buffett and George Soros.

Buffett and Soros have both been known to diss precious metals while buying huge quantities of them. A few years ago, for example, Buffett bought huge quantities of silver, held it, and sold it for a big profit. Soros has stated that “gold is the ultimate bubble” while buying huge quantities of the yellow metal. He has also now invested hundreds of millions in North American based platinum group metals mining companies.

The rest of us should be doing what these financial wizards do, not what they say.

original source: http://www.merriman.com/advanced-portfolio-management/all-that-glitters-is-not-gold/

Merriman does not include a specific allocation to gold in our standard portfolios. This article, by Bryan Harris of Dimensional Fund Advisors, discusses why gold has not been an ideal long-term investment. It includes the following key concepts:

Gold has done well since the year 2000 and in the 1970s, and can potentially be a safe haven during times of political and economic stress. However, for the entire period of 1971 – 2011 gold performed worse than the S&P 500, U.S. small-cap stocks and non-U.S. stocks on an inflation-adjusted basis.

From 1980 – 1999, gold experienced a negative return after inflation of -6.5%, vs. strong positive returns for stocks.

While gold has held its value against long-term inflation, there have been extensive periods when gold did worse than inflation. Gold is also much more volatile than inflation, and can add substantial volatility to a portfolio.

Unlike stocks, which are productive assets which generate growing levels of income and dividends over time, gold has no cash flow and costs money to own.

I actually don’t endorse the article. Upon reading it, I could not help but feel its manipulative.

This article claims S&P annualized return from 2000 through 2011 to be -1.88%. Does not seem to match what I see on http://quicktake.morningstar.com/index/IndexCharts.aspx?Symbol=SPX. However this blog says: The 10-year annualized return through 2010 was a paltry 1.41%
Also check S&P 500 annualized return calculator at http://dqydj.net/sp-500-return-calculator/

excerpt from http://www.genywealth.com/targeted-retirement-funds

Advantages of Targeted Retirement Funds

– Instant diversification, matched to retirement date.
– No need to rebalance or readjust asset allocaton, as you get older. The fund does so itself.
– You can get by with owning just one fund, since most target date retirement funds offer exposure to each asset class.

Disadvantages to Targeted Retirement Funds

As I look back at this post, I think the biggest disadvantages are:

1. The stocks and bonds are comingled. Later on, you can’t sell just the stocks or just the bonds. You have to sell both.
2. ETFs are more tax-efficient than their equivalent mutual funds and target date retirement funds are not available as ETFs. So if you are holding them in taxable accounts, beware of that. Of course this disadvantage does not apply if you are holding the funds in a retirement account.

– Targeted retirement funds base their asset allocation on years until retirement, not your individual risk.
– Even though most target retirement funds are made up of low index funds, some fund companies and 401(k) providers, charge a high fee to invest in their target funds.
– There is no standard or regulations on asset allocation for target retirement funds. Therefore, asset allocation changes dramatically from one fund to the next, even if they have the same target date. In late 2009, Morningstar reported that the range of stock allocation in 2010 target funds, ranged from 26% to 65%.
– Changes can be made to the fund’s core strategy by fund manager. For example, in 2009 Fidelity added TIPS (Treasury Inflation Protected Securities) to the Fidelity Freedom 2050.
– Many investors hold a targeted retirement fund, along with other mutual funds. Thus, their asset allocation varies from the recommended allocation of the TDRF.

A Comparison of 4 Different Target Date Retirement Funds

Here is what stands out to me:

– International stock allocation ranged from 16.70% to 32.94%
– Bond allocations ranged from 1.33% to 15.8%
– Cash ranged from 0 to 2.4%.
– Expense ratios range from .19% to .91%. (Keep in mind that if these funds are in your 401(k)s, these fees can change dramatically)
– To add more complexity to the issue, the diversification, the investing within the asset classes themselves, also varied drastically from fund to fund. For example, for Vanguard’s U.S. stock allocation, they diversify by holding the Vanguard Total Stock Market Index Fund. In comparison, Fidelity includes the following funds for in their U.S. stock fund holdings:

Fidelity Series All-Sector Equity Fund
Fidelity Series Large Cap Value Fund
Fidelity Disciplined Equity Fund
Fidelity Growth Company Fund
Fidelity Series 100 Index Fund
Fidelity Blue Chip Growth Fund
Fidelity Series Small Cap Opportunities Fund
Fidelity Small Cap Value Fund
Fidelity Small Cap Growth Fund
Fidelity Series Commodity Strategy Fund

Set It and Forget It?

Although target date funds are marketed as a set it and forget it approach to investing, they’re anything but.

First, you have to do your homework to make sure your targeted retirement fund matches your risk profile.

And once you start investing in a target date fund, the homework doesn’t stop. It’s wise to keep up with any core changes to the fund such as expense ratios, overall strategy, asset allocation, etc… By reading the prospectus once a year.

While this requires less work from doing the rebalancing, asset allocation, etc…yourself, it’s by no means a set it and forget it approach.

Tips for Investing in Target Retirement Funds

I myself, own a targeted retirement fund in my Roth IRA. Specifically, Vanguard’s Target Retirement Fund 2050.

The fund works for me because it’s the equivalent to how my portfolio would look, even if target funds didn’t exist.

If you decide to invest in a targeted date retirement funds, here are a few tips to making sure your fund of choice, is a good one:

– Don’t look at past returns. The histories of targeted retirement funds are short.
– Know the expense ratios. Keep it as low as possible.
– Read its prospectus. Find out how the allocation changes as you get closer to retirement. Know what happens to the fund after you reach its target date.
– Know your risk tolerance. If you can’t stomach any losses, you might be better off investing in fund with a closer retirement date.