Friday, May 16, 2008

Be Prepared for California Fire Season

Be Prepared for California Fire Season

Fire season has been declared to be upon us now. You may have cleared your brush or you feel you live “far” from a potential fire area. A few years ago, during a fire that hit the Los Angeles and Ventura county areas, I thought my office was fairly safe until I heard that the voluntary evacuation area had been extended to my nearest intersection. My office was in the “wrong” corner of that intersection. Thankfully, the fire departments did a stellar job, and there was a minimal amount of property loss.

Besides getting your brush cleared, what other pre-cautions and preparations should you consider? Below is a list of “10” items to consider. Remember: be prepared. It is not if, but when!

Important Disaster Information for Homeowners Before the Disaster Occurs
1. Maintain a copy of critical records offsite that you will need when a disaster occurs.

2. Cost records for home and contents. We recommend that you create a cost based ledger or journal for each room of your house and office. Make sure you include escrow statements and improvement costs.

3. Keep extensive photographs of home and contents – including any art work and other collectibles.

4. If possible, assemble the original documentation and store it in a water-tight, fire-safe offsite location, not a bank safe deposit box.

5. Scan or create PDF files of the documents including tax returns and store them on data CDs – make multiple copies.

6. If you have significant valuables that are subject to appraisal, have an appraisal prepared at least every three to four years – including your real estate. Copies of these should be part of your data CD.

7. The data CD should also include photo documentation.
8. Plan ahead for a disaster:
a. Prepare and properly maintain a disaster preparedness kit.
b. Prepare a family disaster plan, where will you meet, under what conditions – include alternatives that are clear to all members.
c. Keep some supplies, including comfortable, safe shoes in your car at all times.
d. Establish an out-of-state contact person to call and to call all of your family.
e. Be aware that Cell Phone 911 calls may go to the Highway Patrol first, not your local county 911 dispatcher.

9. Insurance
a. Have you read your insurance policies lately? If you end up in a dispute with an insurance company, a common question is “when did you last read your insurance policy?”
b. Is your coverage consistent with your present risks?
c. Do you know what is not covered?
d. Was your home built many years ago, under a building code that is now outdated and for which you now need additional coverage?
e. Do you know if your cost to replace your assets is adequately insured?
f. Do you know that the cost to replace your home in a major disaster event will rise significantly? The cost to replace a cost-effective, production-line built home in a tract of homes will rise significantly when you are trying to replace your single edition of one of those homes.

10. With the possibility of fire, mudslide, earthquake, tsunami, and severe winds, all of California is subject to some form of natural disaster – don’t ignore the possibility. Take action today.

Saturday, May 3, 2008

10 Actions to Take after a Disaster

10 Actions to Take after a Disaster

The recent disaster has affected your home / and or your business. There are important steps that you should take immediately to protect the financial values of your assets, as well as secure the maximum tax benefits that you are entitled to. The list provided below is intended to give you a head start before you have the opportunity to discuss your situation with a tax professional. This material is not a replacement for a full discussion of your situation, only a list of the important tasks that you should attend to immediately, even before you talk to a professional adviser.

After you have checked on the health and safety of any persons or pets, secure the impacted area and take measures to protect the physical security of any intact assets, then:

Pictures paint a thousand words . . .
…and the full extent of the damage. Take pictures and/or videos of the site and details of the damage, as it appeared when you first saw it after the event if possible. Take additional pictures during any clean up and restoration to show the difference and the changes as well as the damage that becomes observable as you remove the debris. (Pictures that you can find of the assets prior to the damage will also be useful.)

Start and maintain a journal
Because of the commotion and chaos that surrounds you at this time it is important to maintain a log/journal/diary from the very beginning in which you record every detail of everything remotely related to the Disaster and recovery process.

Written documentation . . .
…is paper documentation of the damage. Make detailed lists of the damaged and destroyed items as you sift through the debris. Make a list for each room or identifiable area. This will be valuable in correlating the pictures and the dollars as you develop your loss for any insurance, income tax and Disaster relief (if applicable) purposes.

Educate yourself
If any part of your loss is covered by insurance, in addition to contacting your insurance company and starting a claim, read your insurance policy. Often clauses that seemed clear when you read the policy after it was purchased will have new meanings and generate new questions in the wake of the realities of a major loss. Ask the claims representative for written explanations of clauses that you find confusing. Their explanations do not mean that you agree to or accept their interpretations.

Keep records of all your financial transactions
Because you have no clear idea of what is important at this early stage of recovery, your initial record keeping may have to be excessive. Because of tax benefits that may turn out to be available, you should keep records of all extra costs that you incur as a result of the Disaster to keep your family safe and secure or your business back to an operational state. These will fall into two categories; extra operating / living costs or as often referred to in insurance contracts: “Extra Expense,” or "Additional Living Expenses." The Second category includes debris removal, clean-up costs and any expenses that you may incur for experts who assist you in the process of establishing your loss for tax and insurance purposes. Depending on the terms of any insurance, some or all of these costs may be reimbursed.

Document all new purchases . . .
…of any and all personal property that you acquire after the event and any temporary and permanent repairs that you incur.

Validate and reference check experts
You will probably find it necessary to use the assistance of numerous experts and advisers in the recovery process, many of their titles may be new to you. Make sure that you determine the validity of their credentials and verify any references they provide or licenses they represent they have. Determine if a license is needed for them to perform their service. Determine the limits of the scope of services that their license allows them to perform or the manner in which they can charge for their services. Call the applicable licensing boards and call your state's insurance regulatory agency to verify any insurance claim expert's license. Do not make large advance payments to anyone. Payments should match performance.

Be aware of the tax consequences of time issuesDepending on the time of year that the event happened, there may be only a short time period in which to make critical tax decisions. While many of these require actions by certain restricted dates, it is often possible to request an extension of time to make an evaluation and file the necessary tax papers after the original due date. But the tax authorities must be notified in advance of the need for additional time. It may seem obvious to you that such additional time is needed to make the evaluation, but the Internal Revenue Service does not work that way. Do not assume that one specific extension has blanket authority for other needed extensions.

Time identification will be very important
For Disasters that occur over a period of time and include the end of a tax year (such as flooding from December 28 to January 5) there are specific dates that must be determined for each tax payer. When a loss occurs at the end of the year, one taxpayer may have a loss date at the end of the year, while a neighbor's loss occurs the beginning of the following year. This distinction will become very important for completing tax returns. You must establish the tax year in which the damage to your property was caused by the Disaster. Therefore an appraisal, discussed in the next tip, can be a wasted process.

Expert poor!
Make sure you verify that you have a valid loss before hiring experts. There are many experts that you might need, but the use of certain experts can waste time and money if their work product has no relevance to your recovery. For example, the tax law states that an appraisal is necessary to establish the amount of a casualty loss. But, depending on any insurance recovery and other financial considerations, government assistance and grants, as well as how much you have invested in the asset, you may not qualify for a casualty loss deduction. In fact, you may be facing a possible taxable gain as a result of the Disaster. Do your homework before hiring experts to find out whether or not the expense is covered by insurance.