Category: Protecting Wealth

401k Withdrawal

Sample MSA Language When There is a Retirement Plan Loan from Marriage

 

How Do You Handle A Retirement Plan Loan in a Marital Settlement?

Retirement plan loans are one of the most complicated aspect of QDROs to understand and handle correctly. A retirement plan loan is not actually “debt” as most attorneys understand that term. Instead, retirement plan loans can be thought of as a distribution, and generally should not be equalized with other types of debt (like credit card debt) in a family law divorce case. Here’s why.

When a participant from a retirement plan applies for a loan, the participant’s investments are sold in order to pay out the loan proceeds to the participant. Conversely, when the participant repays the loan balance, the participant retains their own loan payments and interest. Thus, in general, the account balance of a retirement plan already reflects a reduction for the loan.

It’s Important to Ensure One Party Is Not Hit Twice Financially

This can be a complicated analysis and not every plan is the same, but it is important to remember if there is a retirement plan loan, special attention should be given to make sure that one party is not hit twice with the financial aspect of the loan. Below is some common Marital Settlement Agreement language that may be helpful with regard to handling a retirement plan loan (see bolded sentence).

The parties agree that there is a community property interest in Husband’s [PLAN NAME]. The community property interest shall be determined by taking the account balance as of the Date of Separation, plus any contributions made after the Date of Separation that were earned during marriage, and adjusting that balance by investment earnings or losses in the Plan assets from the Date of Separation until the final date of distribution to Wife. Wife shall receive a 50 percent (50%) assignment of the community property interest using a Qualified Domestic Relations Order (“QDRO”). Any loans taken out during the marriage shall reduce the community property interest. The parties agree to jointly retain [QDRO ATTORNEY NAME] to be the neutral attorney to prepare the QDRO. The parties shall each pay half of [QDRO ATTORNEY NAME] fees and agree to cooperate with the QDRO process including providing all documents and information necessary for the preparation of the QDRO.

As always, different language may be appropriate on a case by case basis if there are unique facts.

Home Protection

What to Do With a Residence Upon Death

Dear Sophos

 I am acting as Trustee for my dear dead Aunt Betsy.  One of the Trust assets is her California residence.  What are some of my fiduciary duties and what should I be doing with the house?

 Little Johnny

 

Dear Little Johnny:

First, as Trustee, you have a general duty to secure the residence and to preserve its value.

Assuming that the house is not passing to a specific beneficiary, after the initial 120 Notice period, you should consider liquidating, selling, the house.

During the initial 120-day period of administration, I suggest that, at a minimum, you do the following:

  • Make a detailed inventory of the house content, by photos or video, remove and secure any personal property of substantial value and empty the refrigerator;
  • Have a Locksmith change all of the locks and give you the keys;
  • Have all mail forwarded to your address and stop any newspaper delivery
  • Install an inexpensive security system that will automatically contact the security company if there is a break-in;
  • Have the yard regularly maintained, as though someone was living in the residence;
  • Talk to the neighbors and leave your telephone number with them in the event of an emergency;
  • Install a timer on several lamps, set to go on and off at different times;
  • Find the homeowner’s insurance policy and contact the insurance agent to be certain that the coverage is adequate;
  • If appropriate, have a plumber “winterize” the house;
  • Timely pay the monthly utility bills and loan payment as well as any homeowner’s association fees or at least contact the vendors to explain the circumstance.
  • Obtain legal advice from an attorney experienced in the area of trust administration.

I hope that you find this advice helpful and good luck in your capacity as Trustee.

The Sophos

Audit Featured Image

What to Expect from an IRS Audit

What every taxpayer should know regarding types of IRS audits and common issues that can trigger audit.

An audit is an investigation into a tax return of an individual, business, estate or trust.  The IRS uses this process to determine if the information provided in the tax return is correct. This article discusses three types of audits and several common audit triggers.

Types of IRS Audits

Correspondence Audit

This is the most common type of audit and also the easiest in terms of what is required and the length of time involved.  Usually the IRS will send a request for supporting documentation to prove deductions, exemptions, proof of dependents, proof of charitable donations or other documentation to corroborate a specific part of the return.  This is the least stressful form of audit for the taxpayer and usually sending in the requested paperwork is enough to satisfy the IRS.   It is strongly advised that you seek the help of an experienced tax attorney to prepare your reply to the IRS correspondence audit and to ensure the documentation you send is exactly what is needed.  As long as a response is made within the timeframe and the documentation enclosed satisfies the proof needed by the IRS, the audit is complete.  This type of audit is most commonly utilized for individual tax returns, where there are perhaps one or two simple issues the IRS wants you to substantiate.

 Office Audit

An invitation to appear at an IRS office to conduct an office audit is a serious matter.  It is important you do not attend the office audit without your tax attorney.  Being asked to an office audit means the IRS is counting on the possibility that you owe additional taxes.  It is essential that you seek the advice of an experienced tax attorney to accompany you to the IRS office audit to protect your rights and to use their knowledge and experience to assist you in finding ways to reduce or eliminate any additional taxes.

Field Audit

A field audit is the most serious form of audit and involves an IRS Auditor coming to your place of business to thoroughly audit your records.  If the IRS finds that your business has inaccurately reported income and evaded paying the correct tax, the consequences could result in heavy penalties, additional taxes and possible prison time.  It is of utmost importance to engage the services of an experienced tax attorney to be present while the IRS auditor is at your place of business.

Below is a summary of common audit triggers

Large amount of charitable donations

The IRS looks closely at the receipts and proof of your charitable donations.  If your charitable donations are more than 3% of your income, the IRS will scrutinize your documentation.  Make sure you have receipts, cancelled checks, and appraisals for all donations to substantiate your claim for deductions.

Failing to report part of your income

The IRS already knows what is on your W-2 and 1099s in terms of income.  If you do not report your income accurately on your tax return, this will likely trigger an audit.  You will receive a W-2 from your full-time job, but may also receive 1099s for freelance work you do on the side, as well as other forms of miscellaneous income, in all cases you must report all of your income from all sources.

Large losses on Schedule C, or many years of losses on Schedule C

If you are self-employed, and report your income on a Schedule C, you will report either a profit or a loss.  If your return shows a very large business loss on a Schedule C, or if you have a history of several years of losses on your Schedule C, this will likely attract IRS attention.

The reason behind this is that the IRS likes to see a profit at least two out of five years to consider a business legitimate.  If there are five years of losses reported on a Schedule C, the IRS will likely audit to see if ‘hobby’ would be a better description.  This is important because taxpayers are required to report any income earned from a hobby, but tax payers generally cannot deduct losses.

For example, a Professional Photographer with his own business, clients, advertisements, portfolio etc., can claim as a business expense the purchase of a camera.  Whereas, a doctor who enjoys taking photographs during his weekend hikes cannot claim a new camera as a business expense.

Claiming too many business expenses

In addition to the business/hobby issue just discussed, reporting too many losses can also cause the IRS to question how your business is staying solvent.  If you report many personal expenses through your business without it being a true necessary business expense (in order for your net profit to decrease and therefore your tax liability to decrease) the IRS will scrutinize your records during an audit.

Random Selection

Unfortunately, even if you do everything right, there is always a small (less than 1%) chance that your return will be randomly selected for an audit.

In Conclusion

If you do receive an audit notice from the IRS, it does not need to be the start of a stressful and difficult time for you and your family, or your business.  You will likely benefit from an experienced tax attorney’s advice and direction with the protection of the attorney client privilege.

Real Property Contract Photo

To Buy or Not to Buy – Unwrapping Title Insurance

Title insurance is one of the great mysteries when buying or selling real property.

In California, rarely does someone purchase residential real property without title insurance included.  Almost as rarely does the Buyer know why title insurance is being purchased and what coverage the insurance provides.

Basic title insurance questions include: do I need title insurance; who pays the premium; and what does the insurance do for me?

The answer to the first two questions are simple . . . yes, Buyers in California need title insurance to be certain that they are buying property with marketable title and, generally, the Seller pays the premium for the Buyer’s title policy through escrow, based upon the selling price, and the Buyer pays the premium for Buyer’s lender’s title policy based upon the amount borrowed by the Buyer to purchase the property.

The simple answer to what does it do for you, is that Title insurance protects against losses due to defects in title.

But that answer is misleading because in California there are three different insurance coverage levels, depending on the type of residential title insurance policy that is purchased.

Based upon this chart, provided by Fidelity National Title chart, the best title insurance choice for a Buyer is the ALTA Homeowner’s Policy, as it provides the broadest coverage.

 

Coverage Item

CLTA Standard Coverage

ALTA Residential (Plain Language)

ALTA Homeowner’s Policy

Post Policy Forgery Protection

No

No

Yes

Enhanced Access Coverage

No

No

Yes

Building Permit Violations

No

No

Yes

Subdivision Map Act Coverage

No

No

Yes

Restrictive Covenant Violations

No

No

Yes

Mineral Extraction Coverage

No

No

Yes

Map Inconsistencies Coverage

No

No

Yes

Coverage Extended to Living Trusts

No

No

Yes

Enhanced Encroachment Coverage

No

No

Yes

Automatic Inflation Protection (5 years)

No

No

Yes

Helpful online article on Title Insurance

I recently came across this article which includes an example of why every Buyer should insist on and obtain an ALTA Homeowner’s Title insurance policy when purchasing residential real property.

Click here to read this article.

IRAs and Divorce

Why a QDRO is not needed to divide an IRA

Contrary to popular belief, a Qualified Domestic Relations Order (“QDRO”) is not necessary to divide every type of retirement benefit. The prime example is an Individual Retirement Account (“IRA”).

An IRA is not a qualified retirement plan under the Internal Revenue Code and an IRA is not regulated by the Employee Retirement Income Security Act (“ERISA”). Therefore, ERISA regulations and Internal Revenue Code section 72(t) which otherwise govern QDROs do not pertain to IRAs.

If a financial institution representative informs you that a “court order” or “QDRO” is required to divide an IRA, then simply provide them with a copy of the Judgment / MSA because there is no such thing as a QDRO for an IRA.

A More Simplified Process

The good news for family law attorneys and divorcing spouses is that the process is more simplified and the attorneys’ fees involved are normally less than the cost of having a QDRO prepared. However, there are two aspects unique to IRAs that should be kept in mind when dividing IRAs pursuant to divorce.

1. Early withdrawal penalties apply.

Unlike the transfer of plan benefits with a QDRO, there is no exception in the Internal Revenue Code that permits a spouse to avoid the early withdrawal penalty of 10% federally and 2.5% California when receiving a distribution of IRA benefits prior to reaching age 59½. In other words, if an IRA holder desires to cash out their benefits prior to reaching age 59 ½, there will be a 12.5% penalty and the distribution amount will be taxed at ordinary income tax rates.

For clarity, it should be noted that if the IRA benefits are merely being “rolled over” in a “trustee-to-trustee transfer” from one spouse’s IRA to the other spouse’s IRA, then there is no tax consequence on that transfer and the benefits are held in the receiving spouse’s IRA as pre-tax benefits.

In contrast, the Internal Revenue Code provides under section 79(t)(2)(C) that a QDRO qualified for an exception to the early withdrawal penalty. Therefore, if the parties are planning to take any distributions of retirement benefits prior to age 59½, it may be preferable to do an equalizing assignment with a QDRO rather than equalizing benefits with an IRA.

2. A tax statement is recommended.

A signed “letter of instruction” with tax language is still recommended when an IRA is divided. Although a QDRO is not necessary, it is still important to document the IRA transfer in the event that the IRS or Franchise Tax Board conducts and audit of the IRA transfer. The typical tax statement will contain something similar to the following:

IRA Holder is the former spouse of Recipient. Both IRA Holder and Recipient acknowledge that this assignment is incident to divorce within the meaning of Internal Revenue Code section 1041. This assignment is related to the cessation of the marriage because this assignment is required by the Marital Settlement Agreement entered into between the IRA Holder and the Recipient. After the transfer, the Recipient shall be solely responsible for all income taxes or other tax consequences, if any, associated with the subsequent distribution of the assets to Recipient.

For reference,  the above language is intended to comply with the Internal Revenue Code section that provides for the tax free transfer of IRAs between spouses pursuant to divorce which is section 408(d)(6). The meat of Internal Revenue Code section 408(d)(6) [PDF]  is as follows:

(6) Transfer of account incident to divorce

The transfer of an individual’s interest in an individual retirement account or an individual retirement annuity to his spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an individual retirement account of such spouse, and not of such individual. Thereafter such account or annuity for purposes of this subtitle is to be treated as maintained for the benefit of such spouse.

What is the end result? The division of an IRA does not require a QDRO; however, a tax statement should be accompanied by the IRA transfer to make sure that it will fall squarely within IRC section 408(d)(6) if the IRS or Franchise Tax Board conducts an audit.

Elderly Hands Holding Wedding Ring

SDCERS and the Disappearing Survivor Benefit

Do not assume that a Domestic Relations Order can award an SDCERS survivor benefit

Most people think of government benefits as “better” than the employee benefits received from private employers. However, there are traps for the unwary when dividing government retirement benefits in divorce. Government retirement benefits such as benefits earned with the City of San Diego, County of San Diego, and State of California are not governed by ERISA.

Therefore, the rules and regulations that pertain to government benefits are not necessarily consistent with ERISA, or consistent with common sense. The rules governing the division of government benefits are established by government code and the government’s interpretation of their own code – which can change from year to year.

San Diego City Employees’ Retirement System (SDCERS) is governed by a 13 member Board of Administration and it is possible for a new Board to make the decision to interpret the San Diego Municipal Code differently than its predecessor Board.

In 2008, the SDCERS Board passed Board Rule 5.20 which eliminates the ability of a former spouse to receive the 50 percent Surviving Spouse Continuance unless the employee retired and a Domestic Relations Order was served on SDCERS prior to September 19, 2008.

In other words, even if both parties agree to give the former spouse a survivor benefit, SDCERS will not permit a current Domestic Relations Order to award the 50 percent survivor benefit continuance to the non-employee former spouse. This benefit simply disappears.

Board Rule 5.20 subpart (e) states: “The Former Spouse of a Member is not eligible for a Surviving Spouse Continuance if the Member retired or entered DROP on or after September 19, 2008.”

Although the language of the Rule is relatively simple to read, it is nevertheless difficult to conceptualize because of the following fact pattern: the parties marry, Husband retired while married, Wife was eligible for the 50 percent Surviving Spouse Continuance while married, and then the parties divorce in 2009.

The mere fact that the parties divorce after September 19, 2008, eliminates all entitlement to the continuance benefit. Wife would have received 50 percent of the monthly benefit after Husband’s death if they had stayed married, but instead Wife will receive zero dollars upon Husband’s death.

The SDCERS Board Rule has in essence divested Wife of this benefit simply because the divorce occurred.

SDCERS’ Board Rule 5.20 is Inconsistent with Carmona

Many family law attorneys are familiar with the Ninth Circuit case Carmona v. Carmona which held that a QDRO entered after retirement cannot eliminate the surviving spouse benefit that was elected at retirement.

The Court explained: “Because the retirement of a plan participant ordinarily crates a vested interest in the surviving spouse at the time of the participant’s retirement, we conclude that a DRO issued after the participant’s retirement may not alter or assign the surviving spouse’s interest to a subsequent spouse.”

Carmona guarantees the benefits elected at retirement for the surviving spouse, which is in direct conflict with the Board Rule 5.20 which eliminates the Surviving Spouse Continuance upon divorce.

The only way to explain the difference in logic between these two results is the plan in Carmona was a private plan governed by ERISA while SDCERS is a government plan governed by Code and open to Board interpretation.

Suggestion When Parties Have SDCERS Benefits

This article addresses the availability of the SDCERS Surviving Spouse Continuance upon divorce. There may be other benefits available to the Former Spouse depending the facts of each case such as whether the employee elected an Optional Settlement rather than relying only on the Surviving Spouse Continuance and whether the employee is retired.

One suggestion to parties who have SDCERS benefits or to family law attorneys assisting clients with dividing SDCERS benefits in divorce, is to have the Domestic Relations Order for SDCERS prepared and approved by SDCERS before a Marital Settlement Agreement is signed or before trial on this issue.

Furthermore, because the act of retiring is trigger event that sets limitations on survivor benefits, another suggestion is to wait until after the Domestic Relations Order is served before the employee retires. If retirement must occur before the Domestic Relations Order is filed, both parties should consider coming to an agreement in writing as to what election should be made by the employee at retirement.

1040 Tax Form

Tax Season is Here – The Advantages of Hiring a Professional Tax Preparer

The Advantages of Hiring a Professional Tax Preparer

Even the words ‘Tax Season’ can be enough to give anyone a headache!  Fortunately, you do not need to face tax season alone.  Hiring a tax professional can be invaluable to you especially if your situation has recently changed or is complex.

Federal tax law is adjusted every year, making it difficult for an average taxpayer to keep up to date with all the changes, and to understand how to apply these changes to their own tax situation.

A professional tax preparer works hard to keep up to date with all adjustments to tax law, both federal and state, making it advantageous to the taxpayer to hire someone with such an accurate knowledge base.

Deductions and Credits

With extensive knowledge and experience, a professional tax preparer will be able to assist you in finding little known deductions or credits, that you may be unaware you qualify for.

Where you may be eligible for several deductions and/or credits, and yet only be allowed to use one, your tax preparer will have the knowledge to accurately calculate which deduction and/or credit would be the best choice to minimize your tax liability.

IRS Audit

Facing an IRS audit alone can be tremendously difficult and stressful.  If you are audited, it might be tempting to answer the IRS yourself. It is strongly recommended that even the initial response to an IRS audit inquiry come from a tax attorney.

You can communicate confidentially with a tax attorney before the response to the IRS is prepared to give you the best chance of a “no change” letter from the IRS at the conclusion of the audit.

Filing Status

Did you get married or divorced in the past year?  Did you have a child?  Adopt?  Or have you recently lost your spouse?  These changes in situation can dramatically change your filing status and exemptions, deductions and credits you may be entitled to.

If you are a widow(er) your status may change not only for the year in which you lost your spouse, but for a specific time period after.  Determining the best and most tax advantageous filing status takes special knowledge of tax law and time-sensitive dates.

Your professional tax preparer would be able to determine the best way forward.

Child in College?

Is your child in college?  Your tax preparer can assist you in determining how to claim your child under the age of 24, if they are still in full-time education.

Determining how to properly claim older children, especially if they have income either in the form of wages or investment income, requires in-depth knowledge of ever-changing tax law.

Real Estate

If you have bought or sold any real estate, or have invested in rental property, a tax professional can assist you to make the most of the credits and interest deductions available to you.

If your home or property has been affected by a fire, flood, earthquake or other natural disaster, your tax preparer can assist you to take advantage of relief provisions and elections with regard to replacement property and any gain or loss incurred.

Starting a New Business

Starting a new business is an exciting time for anyone, however there are tax implications that can be difficult to understand.  A tax preparer will help you navigate the complex world of business deductions, expenses, insurances, how to properly report your income, accurately calculate self-employment tax and paying estimated taxes.

If you have started a new business, large or small, it would be wise to seek professional tax advice and assistance in preparing your taxes to ensure accuracy and to take advantage of your tax preparer’s knowledge to utilize all allowable deductions and credits to minimize your tax liability.

Summary

Indeed, hiring a Professional Tax Preparer to prepare and file your taxes, will ease the stress and burden of tax season, and leave you with peace of mind and confidence in your financial future.

Retirement Benefits Feature

The Good and the Bad of Gillmore Elections

Counseling a client on whether to elect Gillmore rights can be complicated, but using a framework in the form of “pros and cons” can help simplify the issue.

In re Marriage of Gillmore is a 1981 California Supreme Court decision which provides an additional “right” to a nonemployee spouse that is otherwise thwarted by a retirement plan from receiving their community property retirement benefits immediately. (In re Marriage of Gillmore (1981) 29 Cal.3d 418.) The fact pattern in Gillmore is surprisingly common. Gillmore is applicable when: (1) an employee is eligible to retire and commence retirement benefits from a defined benefit plan, (2) the employee is choosing to not retire, and (3) the retirement plan is refusing to pay any benefits to the nonemployee spouse pursuant to a qualified domestic relations order (“QDRO”) until the employee actually retires.

In the above situation, Gillmore allows the nonemployee spouse to collect the retirement benefits directly from the employee.

Many family law attorneys have the mistaken belief that a successful Gillmore motion must be accompanied by proof of “ill will” on the part of the employee spouse by showing that the employee is intentionally not retiring for the purpose of preventing the nonemployee spouse from receiving any portion of the community retirement benefits. However, there is nothing in the Gillmore decision that discusses motivation or intent, rather, it is a mathematical determination.

The Court in Gillmore explained, “It is a ‘settled principle that one spouse cannot, but invoking a condition wholly within his control, defeat the community interest of the other spouse.’” (Gillmore, citing to (1978) 21 Cal.3d 779, 786.)

Therefore, if the employee is making the decision to not retire, then the employee should be required to pay the nonemployee spouse the amount of retirement benefits that the nonemployee spouse would have received under the QDRO if employee spouse had elected to commence benefits.

This payment is made directly from the employee spouse by check every month; the payment is not made from the retirement plan.

Tips for Counseling a Client

With this framework in mind, the following practice tips can assist with counseling a client whether to move the court for an order for the employee to make payments to nonemployee spouse under Gillmore.

  1. Review the Marital Settlement Agreement (“MSA”) and QDRO for any reference to Gillmore Sometimes the parties have anticipated this issue and the MSA or QDRO already contains a waiver of Gillmore rights, an award of Gillmore rights, or an expedited procedure for enforcing or determining the amount of Gillmore rights.
  2. Explore whether the employee spouse will stipulate to make payments under Gillmore which would allow the parties to avoid the cost of a motion on the issue.
  3. Perform a mathematical analysis of the trade-off for the nonemployee spouse if the non employee spouse elects Gillmore. Answer these questions:
    1. What is the monthly dollar amount of the Gillmore payments (apply the time rule to the amount of payments the employee would receive if they retired immediately)? If the nonemployee spouse commences payments until Gillmore immediately, their monthly benefit amount for life is frozen (with the exception of cost of living adjustments) which means nonemployee spouse would miss out on any salary increases or overall benefit increases as a result of additional years of service. This is the complexity of the Gillmore election: the nonemployee spouse will receive benefits immediately but that monthly benefit amount is less than what the nonemployee spouse would receive if the nonemployee spouse waits for the employee to actually retire.
    2. What is the monthly dollar amount that the nonemployee would receive if they waited until the employee actually retired and commenced benefits? As discussed above, compare this figure to what the Gillmore payment would be and consider that payments are starting earlier under Gillmore, but the monthly payment is likely less.
    3. Consider the effect of receiving Gillmore payments on the nonemployee spouse’s eligibility and the amount of spousal support. If the nonemployee spouse is receiving spousal support and then commences receiving Gillmore payments from the employee, is the employee going to then reduce spousal support so that the nonemployee spouse is not any better off when receiving the Gillmore payments and the lowered spousal support.
    4. Finally, consider the cost of filing the Gillmore motion when deciding whether to move for Gillmore In many circumstances, Gillmore rights are not automatically awarded in the Marital Settlement Agreement and thus the employee is not breaching the Judgment by requiring the nonemployee spouse to file a formal motion for the court to award Gillmore payments.

In re Marriage of Gillmore provides a powerful tool for allowing a nonemployee spouse to receive their fair share of retirement benefits upon the employee becoming eligible to retire, but the nonemployee spouse must consider the mathematical tradeoffs in order to make the best decision.

 

Estate Tax Form Pencil

A Look at History:  The Estate Tax Exemption Really Has Increased

In a post earlier this year, we discussed that Americans can now transfer more than $5 million dollars in assets through the estate tax system without incurring a tax, while at the same time permitting their beneficiaries to receive those assets with a new and usually higher “stepped-up” basis.

Addressing the concept gave rise to the question:  Given inflation over the years, is the estate tax exemption really higher than it has been historically?  In order to answer that, we created a table showing the estate tax exemption over time, comparing it to the current buying power of the exemption amount in 2015 dollars.

While the comparisons are not perfect because the tax laws have changed over the years, the chart illustrates that the current exemptions are, indeed, historically high.

Throughout most of the twentieth century, the buying power of the exemption amount hovered at around $500,000 measured in 2015 dollars. The exemption’s 2015 equivalent started creeping up in 1990, but did not reach the $5,000,000 range until 2011. (The basic outline of the gift and estate tax laws has been consistent since the early 1980s.)

As noted in the earlier post, the exemption amount has been historically-high for several years.  There are no signs that it will be reduced in the near future.  It is clearly time to consider free basis when making estate planning decisions.

Tax Year                               Estate Tax Exemption                          2015 Equivalent

1920                                          $50,000                                                     $585,805

1930                                          $100,000                                                  $1,406,000

1940                                          $40,000                                                     $562,000

1950                                          $60,000                                                     $584,000

1960                                          $60,000                                                     $476,000

1970                                          $60,000                                                     $363,000

1980                                          $161,000                                                  $459,000

1990                                          $600,000                                                $1,078,000

2000                                          $675,000                                                  $920,000

2001                                          $675,000                                                  $895,000

2002                                          $1,000,000                                             $1,305,000

2003                                          $1,000,000                                             $1,276,000

2004                                          $1,500,000                                             $1,864,000

2005                                          $1,500,000                                             $1,803,000

2006                                          $2,000,000                                             $2,329,000

2007                                          $2,000,000                                             $2,264,000

2008                                          $2,000,000                                             $2,180,000

2009                                          $3,500,000                                             $3,829,000

2010                                          Unlimited

2011                                          $5,000,000                                             $5,217,000

2012                                          $5,120,000                                             $5,234,000

2013                                          $5,250,000                                             $5,290,000

2014                                          $5,340,000                                             $5,295,000

2015                                          $5,430,000                                             $5,430,000

 

El Niño Rain on Roof

Are you ready for El Niño? More Importantly, is your home ready?

An El Niño continues to be predicted for California during this 2015-2016 winter storm season. This means the possibility of storms of major impact and far above-normal rainfall.

While there is no assurance that an El Niño will result in snow pack and rain far above “normal” levels, many in California will see the occurrence as positive, perhaps even an end to California’s prolonged drought, a condition that is having a major effect on the state’s commerce and economy.

How would an El Niño impact a San Diego County homeowner and what pre-planning steps should be undertaken . . . before our storm season arrives?

Homeowner’s Insurance:

Most homeowners have property damage insurance on their dwelling. Does your homeowner’s insurance provide coverage for water damage? Maybe yes, maybe no. Locating your insurance policy is usually the first hurdle to cross. Once your policy is in-hand, consider calling your insurance agent to discuss your coverage. Ask if you have coverage for damages caused by water intrusion resulting from rain.

If the answer is “no,” discuss the cost of adding such coverage.

If the answer is “yes,” your next question is: “Are there conditions to the coverage?” Insurance policies frequently require the storm to cause damage to the roof or structure first, thus allowing the rain into the home, before providing rain damage coverage.

Stated another way, if a home has a damaged roof prior to a damaging rain storm, insurance coverage will likely be denied. Make sure you understand your insurance policy. One method to do this is to explain your understanding of your policy coverage to your insurance agent, in your own words, so your agent can clarify any misunderstandings.

Roof Condition:

Water intrusion from a leaking roof is a major source of damage during periods of heavy rains. Water intrusion naturally leads to numerous consequential damages to both personal property and the residence. Warped dry wall, bulging ceilings and mold are just a few of the structural issues that may occur. Water damage to artwork, antiques, carpet and rugs can be devastating.

When did you last have your roof inspected? Now is a good time to schedule an inspection, including a written report and photographs. You will avoid worrisome stormy nights if you have your roof inspected and repaired before the storms arrive.

Roof Gutters and Drains:

Cleaning drains is a necessary fall chore, of greater importance with an El Niño predicted. Gutter seams should be visually inspected to be certain there is no evidence of water leakage, requiring repair.

Once the rain water goes into the gutter and down the drain, where does that fast moving water end up? Do your downspouts end at the foundation of your residence, allowing water to pool against the house, or worse, undermine the foundation?

Downspout extenders, to move water away from foundations, are readily available from hardware stores and online.

Windows and Doors:

Are your windows and doors watertight from wind-blown rain? Both can be easily checked with a garden hose spraying water on the doors and windows. If the current drought causes your conscience to not allow you to “waste” water to check for water tightness (perhaps not a waste in the long run), then visually inspect doors to be sure there are no gaps where daylight is showing.

With windows, be certain that windows shut tightly and look at the condition of the weather stripping. Replaced weather stripping on doors and windows will go a long way to keep rain out of the house, with the added benefit of keeping warm air in the house during colder weather.

El Niño could help California – just make sure you help your home stay ready.