On "Negative Inheritance"

Boston Elder Law specialist Harry Margolis posts about the idea of what economists call a "negative inheritance," where the costs of care for elderly parents outstrip any "gift" which might ever be received. As he writes, the costs are "financial, physical, and emotional."

Thanks to Louisiana estate planning attorney Laurie Redman of the Louisiana Estate Planning and Elder Blog for bringing this to my attention.

"Docubank" for the Storage of HIPAA Releases and Powers of Attorney

I recently became aware of a service which maintains and makes available legal documents, such as releases under the Health Insurance Portability and Accountability Act of 1996 (known as HIPAA releases) and living wills. HIPAA releases permit confidential medical records and information to be disclosed to those person(s) identified on the release form.

For a $45 yearly fee ($145 for a five year subscription), Docubank will make these important legal documents available to health care providers anywhere in the world, on a 24 hour basis.

How does it work? Docubank will fax these records to anyone requesting this information. The access codes are found on the Docubank membership card. The client is instructed to have this card in his or her possession at all times.

How this type of information can be quickly obtained is a constant, frequent issue which arises with my estate planning clients. My readers might consider the Docubank service as part of their estate plans.

How to Give? Ideas from the Rich, and Near Rich

There are a myriad of ways to give, if you are so inclined. Some give directly to institutions (such as qualified charities) while others create trusts for this purpose.

Giving through a trust can be complex, and might involve (for example) setting up a Charitable Remainder Trust (called a CRT in estate planning circles), where income is paid for a lifetime or a certain number of years to a non-charitable beneficiary, with the charity receiving what is left afterwards (which is called the "remainder interest"). Another popular category of trust is a Charitable Lead Trust, where the charity receives the initial interest and the remainder interest going to non-charitable beneficiaries. The Charitable Lead Trust is abbreviated a "CLT."

Depending upon the method of giving, you as a taxpayer might be entitled to an income, gift, or estate tax deduction. But how do those wealthy enough to file an estate tax return give?

A recent IRS report written by Brian G. Raub shows how those with estates in excess of $1.5 million gave in 2004. That report broke down the giving patterns of the wealthy and near-wealthy.

The report shows that those with gross estates between $1.5 million and $3.5 million gave the most to educational institutions (28.7%), with the smallest percentage going to "animal related activities" (1.6%). Religious and spiritual giving among this near-but-not-quite-rich category was in second place, with 18.5%.

On the other hand, those with large estates of $5 million or more gave significantly the most to "philanthropy and volunteerism" -- 70.2%. Of this wealthy category of taxpayer, educational institutions were in distant second place (10.5%) with religious and spiritual giving receiving a paltry 3.2%.

By the way: The wealthy gave only 1.1% to animal related activities.

But don't be fooled by these low percentages. The amount of money involved is still significant. For instance, even the minuscule 3.2% given to religious and spiritual organizations by the wealthy (those with estates exceeding $5 million) totalled $443,482,000. The total of all charitable giving by all 2004 estate tax return filers (i.e., those with gross estates exceeding $1.5 million) totalled $17.8 billion dollars. Remember that this only relates to what was reported in estate tax returns. It does not include the giving recorded in income tax returns.

Of course, you don't need to be rich to give. Giving can be a part of any estate and/or financial plan -- along with beneficial tax deductions as a side benefit. Your financial and/or estate plan advisor can help you factor giving as part of your estate and financial plans.

(My thanks to Professor Caron of the TaxProf Blog for making me aware of this report)

Thoughts on Planning for College

What are the best ways to plan for college? And what should you expect to pay for college?

According to a recent U.S. News and World Report article written by Kim Clark, yearly college costs, without grants, vary from $4,552 for community college, to over $35,000 for private universities. Of course, grants reduce the family burden -- when they are available.

Most families use a combination of debt and savings, and sometimes grants and scholarships to pay tuition. But there are a number of useful guidelines when saving for college. Consider the following:

Save early and often: Start when your children are young, if possible. In fact, if you plan on having children, there is no need to wait until they are born. Consider setting aside money even before the birth of your first child.

Don't worry about the amount: Are you falling short of your goal? Probably. But, who doesn't?

First, you will never have enough. Certainly, it's best to stretch your finances now as much as possible. You will thank yourself later.

But, second, do not give up if you cannot meet your contribution goal in any given month. If your finances are tight, contributing (for instance) $50 instead of the usual $300 is better than nothing. If you contribute that $50 in a mutual fund which grows at an annual rate of 8% over 16 years, that single contribution will be worth almost $180 when withdrawn. This is enough for a few college-priced text books. The lesson: Even a little helps. Just do the best that you can, and relax about it.

Don't be afraid of account volatility if your children are young: If your children are young, remember that several economic cycles will pass before they enter their first year of college. Thus, even if the market suffers a downturn (a likely scenario), contributing to a college account with growth potential -- such as in a mutual fund investing in growth stocks -- will provide a much greater potential for appreciation than a simple savings account. Of course, there are risks. However, placing even a portion of college funds in equity mutual funds will allow for growth.


Reduce exposure as your children approach college age. It is also wise to reduce risk as your children age. While youngsters will live through several economic cycles before college, your account will not recover from a devastating market downturn suffered as they approach their college years.


Be realistic about your little darlings. We all hope for the best for our children. However, contributing all or a significant portion of college funds to a Uniform Gifts to Minors Account (UGMA) or to a Uniform Transfers to Minors Account (UTMA) may not be the best choice. Your little darlings will own that account when they become adults; there is no guarantee that at the age of 18 they will use the funds for college. Busting your budget today, only to finance a beer party 16 years later is probably not what you had in mind. There are plenty of financial vehicles available which will give you control in later years.

I will discuss some of the best and most used investment vehicles in a later post.

How to Avoid a "Dry" Trust

Many clients who spend good money to an attorney to have a trust prepared sometimes don't consider the next step, which is funding their trust. A trust is essentially a useless piece of paper unless it is funded. "Funding" comes about when property is transferred into the name of the trust, or in those cases when a trust purchases property in the same way that a person might purchase an asset, such as a house or an insurance policy. An unfunded trust is also called a "dry" trust.

For example, if you establish a trust to hold some of your property, like your house, the name on the deed must show the trust as the owner. If John Doe and Jane Doe own property as joint tenants with right of survivorship, the deed existing before the trust is created might (for example) state their name as follows: "John Doe and Jane Doe, husband and wife, as joint tenants."

After the trust is drafted naming the house as part of the trust property, this couple would fund the trust by placing this real property in the name of the trust. For example, the deed might show the following transfer: "John Doe and Jane Doe, husband and wife, as joint tenants, hereby grant all of their right, title and interest in the following property to John Doe and Jane Doe, as trustees of The Doe 2008 Living Trust." By doing this, John Doe and Jane Doe may control the property as permitted by the conditions set forth in their trust agreement. Oftentimes, the trust agreement will permit the trustees of a living trust to control the property in the same manner as if they owned the property outright, at least when both spouses are living.

However, the bad news: If a trust is not funded properly, it is possible that a probate will need to be opened, just to either fund the trust, or to transfer the property. Either way, this couple would need to employ an attorney and engage in unnecessary costs, when a simple transfer deed would have done the trick.

California has an exception, which would require the filing of a petition with the probate court in an effort to receive a judicial determination that the property should have been transferred into the trust (this is called a Heggstad petition). However, this is a relatively new procedure, and in light of the attorney fees which would be involved, it is also another example of an unnecessary cost. Also, Heggstad petitions do not always work, so the petitioner might not only have the added expense of filing the petition, but also may not prevail in court.

The moral, of course, is to properly fund a trust in the beginning. Doing this will save much effort, time and money in the long run.

The Emotional Side of Estate Planning

There is a definite emotional side to planning your estate. Although I always advise my own clients to regularly update their plans, I (ahem!) realized that my own plan was significantly outdated. As I prepared my own trust I felt the pit in my own stomach, thinking about my own demise.

Yes, attorneys are sometimes the last to take their own advice.

But I am very glad that I put myself through this. It made me sensitive to the procrastination I see in my own clients and especially prospective clients, who have yet to take the plunge. I can now say: I've been there...

How do we deal with this? How do we get over our initial feelings of uncertainty and, even fear of acting? First, remember this: While "emergency" plans are sometimes necessary, estate planning is really for healthy people! The best time to plan is when you are under no emergency or peril.

Second, we do not plan for ourselves, as much as much as we plan for our loved ones. Many estate planning issues are designed to benefit those who we love. Therefore, think of estate planning as a gift to your children and heirs, and try not to think of it as drudgery.

Third, it is generally very dangerous to do this without the assistance of an attorney. While legal forms and do-it-yourself programs and websites abound, you get what you pay for in estate planning.

And if you do it wrong, or if you do it incorrectly, there are rarely second chances.

I know a family who engaged in some do-it-yourself planning, and gifted parental property to the children to avoid probate. When mom passed away, guess what? They probably at first thought that they were saving some "bucks" on attorney fees, but as a result they owed thousands in capital gains taxes. A properly prepared trust might have avoided this result.

So, while there is certainly an emotional component to planning your estate, think of it as a business transaction -- to avoid the costs of probate, to reduce the sometimes inevitable tax burden, and especially for your own peace of mind.

Texas: Surety Not Liable for Counsel Fees in Excess of Bond

In the recent case of Colonial American Casualty and Surety Co. v. Scherer, -- S.W.3d --, 2007 WL 135969 (2007), a Texas appellate court ruled that a surety issuing an administrator's bond was not liable for attorney's fees in excess of the stated penal amount on the face of the bond. In that case, the stated penal sum was $30,000.

This case has some significance to California because while the Texas appellate court was applying Texas law, and was interpreting the language of the specific bond, the court cited numerous California cases in reaching its decision.

But yet a California court would probably still use a somewhat different approach given that the Bond and Undertaking Law [Cal. Code of Civil Procedure § 995.010] establishes a regime for asserting claims against bonds given in a proceeding, which would include probate matters. No matter what the bond provides there are avenues for seeking counsel fees from a surety on a "proceeding bond" if the surety fails to honor a claim in a timely manner [see Cal. Code of Civil Procedure § 996.480].

Wolves in Experts' Clothing

California Governor Arnold Schwarzenegger has signed a bill making it more difficult to engage in reverse mortgage scams. Under Senate Bill 1609, reverse mortgage applicants will be required to receive independent advice concerning the pros and cons of the loan from an independent counseling agency. The agency would not have an interest in the loan transaction.

According to a September 6, 2006 Oakland Tribune article written by Becky Bartindale, the idea for the law came from a real-live incident of loan fraud:

The idea behind Senate Bill 1609 came from Shirley Hochhausen, managing attorney for Community Legal Services in East Palo Alto, as part of Simitian's annual "There Ought to be a Law" contest. Hochhausen proposed the measure after seeing too many clients such as Johnny Damon, 66, who is now at risk of losing his East Palo Alto home of 34 years.

Damon, who worked as a cement finisher for the city of Palo Alto, was sold a $200,000 reverse mortgage last September. Damon bought his home for about $50,000 in 1977, and it is now worth about $700,000.

But according to a lawsuit filed last month, the brokerage company arranged a traditional mortgage, unbeknownst to Damon.

So instead of receiving the income he was counting on, the suit alleges, Damon was stuck with monthly loan payments he cannot afford, and the president of the brokerage company absconded with $190,000 in loan proceeds.

Hat tip to Prof. Beyer for bringing this to my attention. Also, Julia Wei of the Dirtlaw Blog posted a good analysis of this statute on her blog.

Probate Assets vs. Non Probate Assets

Post death transfers of assets in California roughly fall into two categories: probate transfers, and so-called "non probate" transfers. An example of an asset which would probably require some sort of probate administration (i.e., constituting a probate asset) would be a piece of real property, for example, having a form of title such as "John Doe, a single man."

An example of a probable non probate asset (which would likely not require the intervention of a probate court) might be: "John Doe, a single man and Jane Roe, a single woman, in joint tenancy with right of survivorship." If Jane Roe were to die, for example, the property would immediately transfer to John (at the moment of her death) by operation of law.

To decide whether property is a probate or non-probate asset, ask yourself: Does the property have anywhere to go? In other words, without an order would the property automatically transfer to someone else? If the answer is "yes" (because some form of transfer already took place) then it is probably not a probate asset. On the other hand, if the property has "nowhere to go" otherwise, then it probably is a probate asset requiring administration.

This is a very general rule, however; there are exceptions. In California, for example, administration would not be required in the case of a small estate, even though the asset might be considered a probate asset. Also, a spousal property petition [Probate Code § 13502.5] is a form of a probate proceeding. But the proceeding is sharply abbreviated, and is essentially an order that probate administration is not required.

A Thoughtful Piece on Our Mortality

Professor Francine Lipman of Chapman University has written a touching essay entitled Celebrating Life (Chai) and Taxes: Lessons Learned (available in downloadable format) where she describes her experiences dealing with her mother's illness and death, on both an emotional and an estate planning level.

While many estate and financial planners regularly deal with these problems on a "professional" level, living the problem -- as Prof. Lipman has done -- is something we will all face at one time or another. That is, if we live long enough to do it.

Lessons from Anna Nicole Smith: The Problem with Delaying Getting Your Financial House in Order

Believe it or not, there are some lessons in the death of Anna Nichole Smith, which occurred last week. In his blog, Professor Beyer gave a summary of what we currently know, and what we don't know, regarding her (at least, at this point) mysterious death:


She may not have had a will. It is unknown if Smith had a will; if she did, it is unclear what it provided. Therefore, if it is ultimately determined that she did not have a will, her assets would probably be disposed under the laws of intestacy -- this means that the money would be likely shared by her child, and husband (if it turns out that she was married, which is now an open question).

Was she married, or not? She may or many not have been married. The legal status of her relationship with Howard Stern is not clear.

She had an infant child. This speaks for itself.

She was likely quite rich -- and may have an expectancy. This also speaks for itself. Even though it is not currently a part of her estate, she had an expectancy from her deceased husband's estate in the sum of about $474 million -- give or take.

What does this tell us? Here are some ideas:

1. It pays to be a "gold digger"...(just kidding -- well, maybe not...).

2. Her child has no clearly designated guardian. If Anna was without a will, her child has no clearly designated guardian. Although it is ultimately up to the court to decide this issue, Anna may have forfeited an important legal right in failing to have an effective will in place, to the detriment of her daughter.

3. Even if a person is without assets, wills are important. Most of us do not have an opportunity to receive $474 million. However, even young, relatively "poor" families should have an effective will to ensure that their children for the purpose of appointing guardians for their children. Also, financial circumstances do, indeed, change over time.

4. An outdated will is little better. If Anna had an outdated will, it would have been little better that no will. An outdated will would not necessarily have stated her current wishes, and could very well have contradicted those wishes. For instance, she apparently had a very flexible attitude about relationships. The fact that she apparently had many changes concerning her wishes over a short period of time is an even more important reason for a current will.

5. It doesn't pay to wait. I'm sure that Anna did not plan on dying at the age of 39.

New Website

All are invited to see my new website, Stratton Planning.

Why I Prefer Home Visits

My personal preference is home visits. While I don't mind (and, for me, it is certainly more convenient) meeting clients in the office, I find that home turf is where they feel the most comfortable. Also, while there, they have added access to their books and records; have you ever gone to an attorney, only to discover that you left some important document, like your old will or that deed (after all, trusts cannot be funded without this information).

Sure -- it is more time consuming, but the greater Los Angeles area is filled with lawyers who will not take the time to meet with their clients in this way.

Presently, I am in the process of starting a financial planning practice, as I am now in the process of registering as a California investment advisor. At that point, I fully intend on doing home visits with my financial planning clients. As far as I am concerned, it's the best way to go.

Patenting Estate Tax Strategies?

One wonders about the thinking -- The U.S. Patent Office has been permitting patents on legal strategies for tax avoidance. The New York Times chimes in against the practice:

The broken American patent system has a knack for sanctioning the ridiculous. In the latest example, businesses are receiving patents for devising ways to obey the law — the tax code, to be more specific. What’s next, a patented murder defense?

As Floyd Norris reported recently in The Times, the broad category known as business-method patents (like patenting the idea of pizza delivery rather than the pizza itself) has expanded once again. Now it includes the legal ways that accountants and lawyers help their clients pay less tax.

The criticism seems so obvious: Why should anyone have a patent on a legal interpretation? If in my professional opinion a client should structure his or her estate in a way which would "violate" a patent, does that mean that I do not make the recommendation? Or do I have an obligation to refer the case to the patent-holder?

(Hat tip to Professer Beyer for the link, which is here).

Consider 529 Plans for College Savings

So-called 529 Plans for saving for college and higher education expenses is a great deal, and should be seriously considered even if you are of modest means -- even if you feel that you have difficulty saving. Also, recent federal legislation has made the tax benefits permanent. Here are some of the benefits of a 529 Plan:

• The contributions are after tax dollars, but contributions grow federal tax free, as long as the money is used for "qualified higher education expenses";

• Each state is permitted its own plan; many state allow contributions to be withdrawn with the gains tax free from that states' own plan, again for qualified higher education expenses;

• There is virtually no limit to the amount which can be gifted. While federal law requires states to set contribution limits, and many states have these contribution limits, There is generally no restriction to signing up for another states' plan if you happen to "limit out" in your own (which is not, I would add, generally a problem). Or, perhaps you prefer the plan offered by another state. You may not have state tax advantages in using another states' plan, but it still might be worth it (however, confirm this with your state to make sure that you are not running afoul of any local restrictions);

• You may "rollover" money from one state plan to another. The new College Savings Account must be funded within sixty (60) days, like an IRA. One rollover may take place in any 12-month period, per college savings account. IRC § 529(c)(3)(C)(iii);

• A "trick": If you do not like your state's plan, enroll into another states' plan, and then do a "rollover" into the plan sponsored by your own state as your child reaches college age.

One "problem" with 529 Plans: You are given a basket of securities, but you do not actually have the right to "investment control." The most control that you can exercise is through a general basket of securities, professionally managed. Usually the basket of securities is based upon the age of your child (more aggressive investing for younger children, but less as they advance toward college age). Sometimes you are permitted a percentage equity option -- like 70% equities vs. 30% more conservative investments, etc.

However, I count the lack of investment control over specific investments to be an advantage. All too often, I think, we overestime our investment skills. My suggestion: Just leave it to the professionals to worry about.

The California state plan is offered through Scholarshare which previously used TIAA-CREF as their management company. Happily, at least in my opinion, this coming November (2006)management is being transferred to Fidelity Investments. Here is Scholarshare's press release on the issue:

Beginning November 2006, the ScholarShare College Savings Plan will begin partnering with a new program manager, Fidelity Investments, one of the world’s largest providers of financial services. The new contract with Fidelity - which currently manages more than $8.1 billion in college savings dollars for families across the country - will enable ScholarShare to offer lower fees, better account access and more investment options to California families. TIAA-CREF Tuition Financing, Inc. (TFI) will continue to manage ScholarShare until TFI’s contract expires this November.

I like Fidelity Investment's operation costs (relatively low) and their service. No matter what, however, strongly consider using your states' -- or another state's College Savings Account -- even if you can only invest a little. It will grow.

Trust "Mills" and Lawyer Ethics

I imagine that the situation is fairly typical: A less than scrupulous financial planner, or perhaps someone selling comprehensive "financial and estate" services, (or an estate planning "paralegal") prepares trusts and wills to be signed by a cooperative lawyer-"partner." The lawyer simply signs off on the documents, and the two split the fee. This is fairly common (for example) in the relationship between lawyers and collection agencies. The agency prepares the paperwork, and the lawyer just signs off. The same is true for trust "mills" or "factories," which pump out generic trust documents like so many widgets.

I was once at a Financial Planning Association chapter meeting, when a "financial services" fellow pulled me aside, and suggested a very similar relationship. Now, please do not get me wrong -- as a rule I have found financial planners to be extremely ethical and professional. However, my antennae went up immediately with this individual, and another planner who overheard our conversation pointedly told him at one point, "you've got to be careful. You can't practice law without a license."

That fellow never returned.

In 1990, the Colorado Bar Association addressed this very issue in "Formal Opinion 87," Collaboration with non-lawyers in Preparation and Marketing of Estate Planning Documents

The Colorado Bar determined that this was unethical, on numerous grounds:

-- The arrangement aids the unauthorized practice of law

The purpose of the ethical rule, Rule DR3-101(A), is to protect "the public in its need for and reliance on the integrity and competence of those who undertake to render legal services, recognizing that competent professional judgment is the product of a trained familiarity with law and legal process and a disciplined, analytical approach to legal problems coupled with a firm ethical commitment."

The Colorado Bar cited a previous Colorado Supreme Court decision, which stated that the marketing and preparation of living trust documents constitutes a violation of the Bar Act, constituting the unauthorized practice of law. People v. Schmitt, 126 Colo. 546, 251 P.2d 915 (1952). However, the Bar placed legal aid "kits" prepared for and/or used by the non lawyer in the same category:

Both the "factory" and its non-lawyer salesperson are engaged in the practice of law by preparing and marketing living trust packages, and the attorney's assistance to the factory is an integral part of this process. A lawyer may not assist a non-lawyer corporation which provides legal services to third parties.

The Bar went on:

[A] publishing house's marketing and preparation of living trust "kits" constitutes the unauthorized practice of law as decided in Schmitt, supra. While we hesitate to say that any attorney would violate DR 3-101(A) by representing a client who had obtained such a living trust kit, an attorney who willingly associated himself or herself with such an enterprise, allowing his or her name to be given out in the living trust kits, would certainly violate the rule.

--Fee splitting is prohibited

Another problem with these arrangements is that it violates the near universal rule against fee splitting. Again, the Bar explains the reasoning:

As the American Bar Association has recognized, the purpose of the fee-sharing prohibition is to avoid the possibility of non-lawyer interference with the exercise of the lawyer's independent professional judgment in representing a client, and to ensure that the total fee paid by the client is not unreasonably high.

Yet, this does not mean that a lawyer is wrong in teaming up with other professionals in the estate planning process. Obviously, the ideal "team" is an alliance between a client's accountant, financial planner, and estate planner. The danger, however, is the possibility that the lawyer's independent judgment will be usurped by an unscrupulous and/or uninformed lay person:

The Committee recognizes that a multi-professional "team" approach is often appropriately used in the estate planning process. However, a lawyer involved in such a team must take great care to ensure that such an arrangement does not limit or preclude the lawyer's exercise of independent professional judgment, either with regard to matters delegated to the non-lawyer, or particularly in advising the client as to whether a living trust is appropriate at all.

The bottom line: Let the buyer beware. There are tons of sharks out there. For those of you who attend estate planning seminars, watch the professionals closely during their sales presentation:

If there is a "team," who is doing the talking?

Ask questions. Figure out who on the team prepares the documents?

Also -- who do you interact with as the documents are prepared? If you deal with the insurance agent or "para planner" instead of the attorney, run!

Also, is it high pressure? Are you given a "deal" or a "discount" that will evaporate if you do not sign up right now?

Does the attorney (or other team member) mention anything about funding the trust? If you fail to place the real property, stock, or account in the name of the trust -- as often happens with "mills" -- you end up with a dry, unfunded trust. That's a piece of paper which doesn't do what you paid for.

In the final analysis, remember that the old rule that "you get what you pay for" generally applies in the estate planning field. If you get a "mill" or a "factory" trust -- that's what you get.

If you buy a trust CD for $50, you get ... a $50 trust. That is...

if you're lucky.

Take that, New York

A number of legal blogs have latched onto proposed new rules in New York governing lawyer advertising. The only problem with these rules: They arguably apply to blogs -- even those blogs originating out of state, or even international law blogs.

Allison Shields of the LegalEase blog summarized the draft rule in an early June 15, 2006 post:

Every lawyer needs to be aware of the proposed rules, since they apply not only to lawyers that practice in New York, but also to lawyers that solicit business in New York, which, according to the rules, would include any lawyer whose advertisements on the web can be viewed in New York.

In an article in today's edition of the ABA e-Report, Blogosphere Aboil: N.Y. Proposal Would Designate Lawyer Blogs as Advertising, Stephanie Ward outlines the battle lines:

The storm was set off by a proposal that 'computer-accessed communications' such as blogs be included in New York’s definition of legal advertising, and therefore require state scrutiny. The proposal, by a committee created by the state’s Administrative Board of Courts, also suggests the state code of professional responsibility extend court jurisdiction to out-of-state legal advertising that appears in New York.

"Could I be disciplined by New York state because there are pay-per-click adverts on my weblog or seminars, and these are interpreted as acts which ‘solicit legal services’?" asked Justin Patten, a solicitor in England who posts at his blog, Human Law.

After reviewing the proposed rule, it seems to me that it would not only apply to bloggers, but any firm which posts a website. Many firms, for example, include articles, informational pieces, and other written material which would consitute an advertisment or solicitation for business to the same degree as blogs.

There have been many good pieces written relating to this proposal; however, I must admit that the proposal which will create the greatest heartache for me -- and the most angst -- is this one:

An advertisement or solicitation shall not: . . .

(4) Include the portrayal of a judge, the portrayal of a lawyer by a non-lawyer, the portrayal of a law firm as a fictitious entity, the use of a fictitious name to refer to lawyers not associated together in a law firm, or otherwise imply that lawyers are associated in a law firm if that is not the case;

(5) depict the use of a courtroom or courthouse[.]

Section 1200.6(d)(4)-(5)

Personally, I'm going to have a very tough time with both of these new "advertising" requirements. So -- to get it out of my system before I have to either close down this blog or comply with the onerous state regulations of the aptly named Empire State -- here is a photo of my favorite judge, expressing what I think about this whole thing, captured in a picture from the Boston Herald:




And, in another act of civil/estate planning disobedience against the great State of New York, here are a few pictures worth considering on this humble blog...isn't this courthouse beautiful?




And...how about this Minneapolis courtroom (yes, a **gasp** courtroom which is, incidentally, also quite beautiful) ...




Perhaps the fact the courtroom is in Minnesota will reduce my administrative sanction.

Take that, New York.

(Hat tip to Prof. Beyer for bringing this nonsense to my attention)

Make sure your trust is coordinated with your durable power of attorney authorization

Something which should be considered when you have an attorney prepare a living trust is to ensure that the trust is coordinated with any durable power of attorney which you may have prepared on your behalf.

A durable power of attorney allows you to designate an agent to act on your behalf. For example, you might want to make sure that you have an agent authorized to manage your financial affairs if you are unable to do so. It is "durable" because your agent may act even if you are under a disability -- even disabilities such as (heaven forbid) Alzheimer's and dementia, or even a coma. A durable power of attorney is not to be confused with a power of attorney authorizing health care decisions, which is an entirely different subject. A durable power relates to financial and property-related matters.

Of course, living trusts also relate to financial and property-related issues. Thus, durable powers of attorney and trusts often overlap in many ways.

However defects or changed circumstances sometimes arise after the trust's settlor (i.e., the person(s) creating the trust) is incapable of amending the trust agreement. In anticipation of such cases, a settlor might want to consider giving his or her agent (also called an "attorney in fact") the right to amend or even revoke a living trust.

In California it is necessary for the trust agreement to specifically state that the attorney-in-fact has the authority to amend or revoke the trust. California Probate Code section 15401(c) requires that the trust document grant this authority.

While there are many considerations involved in deciding whether to ultimately permit your agent to retain this type of authority, make sure that your trust document reflects your wishes. Personally, I prefer the trust document to permit this authority. But if my client wishes to limit the scope of his or her agent (or even to deny the agent the power to amend and/or revoke the trust), I generally address the issue through the durable power of attorney authorization. In my view, this is the most flexible approach which also prevents unnecessary trust amendment in the event the client changes his or her mind, or if circumstances change.

Passed the Series 65 Examination

I have been a little preoccupied recently, because I have been studying for my Series 65 Uniform Investment Advisor Law Examination. Today, I passed the examination. It allows me to register as an Investment Advisor in the State of California, and to provide certain Financial Planning services that I could not previously provide.

Stay tuned; there will be more later.

Frustrated

I'm trying to contain myself. I have tried to draft a post twice, discussing advanced healthcare directives and the controversy concerning the Terri Schiavo case -- as well as regarding a recent news story posted on Neil Hendershot's blog here.

I have tried to draft a post twice, and I have also lost the lion's share of the post exactly twice (wasting about an hour) -- it has disappeared into the Blogger "ether" twice.

Damn Blogger. I'm done. When I cool down, perhaps I'll try it again.

In the meantime, the observations as posted on Neil's blog are not necessarily unusual. Here is another story evidencing that at least some diagnosed as being in a Persistent Vegatative State (PVS) may have a conscious existence.

The story is from the Washington Post; here is the most important excerpt:

According to all the tests, the young woman was deep in a "vegetative state" -- completely unresponsive and unaware of her surroundings. But then a team of scientists decided to do an unprecedented experiment, employing sophisticated technology to try to peer behind the veil of her brain injury for any signs of conscious awareness.

Without any hint that she might have a sense of what was happening, the researchers put the woman in a scanner that detects brain activity and told her that in a few minutes they would say the word "tennis," signaling her to imagine she was serving, volleying and chasing down balls. When they did, the neurologists were shocked to see her brain "light up" exactly as an uninjured person's would. It happened again and again. And the doctors got the same result when they repeatedly cued her to picture herself wandering, room to room, through her own home.

More on this later, when I cool down...

Another Interesting Blog on Estate Issues

Although I quietly placed his blog on my blogroll yesterday, I wanted to highlight a new blog in the estate planning arena, PA Elder, Estate & Fiduciary Law Blog by Mr. Neil Hendershot. It is an engaging, interesting blog I would refer readers to concerning numerous issues, including elder law matters (which appears to be of special interest to the author).

Other blogs I like are:

California Estate Planning Practice Blog by Jennifer Sawday of Sawday & Drake in Long Beach, California, and Wills, Trusts and Estates Prof Blog, by Prof. Gerry Beyer. I'm also partial to Massachusetts Estate Planning and Elder Law blog, by Leanna Hamill. Ms. Hamill does not post frequently, but her posts are worth reading.

One thing I like about the blogs by Ms. Sawday and Ms. Hamill are the practical issues they regularly raise in their posts. Dr. Beyer's blog is always cutting edge on estate planning issues -- I always go there first, to see "wats happenin'."

What to Think About When Approaching Your Estate Planner...

As I sit here, I can't remember one person who really wants to hire an attorney (that is, ignoring the handful of truly litigious plaintiffs I have run across over the 20+ years of my practice).

Most people don't want to hire an attorney. In fact, most probably dread hiring an attorney to plan their estate.

Thus, if you give me a call and tell me that you will think about hiring me, and you say that "I'll call you back in a few days" I recognize that you may not call back. In fact, I am sometimes surprised when potential clients really do call back. The fact is that going to an estate planner is difficult. Most people who hire an attorney to draft their wills and trusts do so out of a feeling of obligation. Facing your mortality is truly difficult. But then...




...so is facing the paperwork.

If you come to me, I might ask you to search your files, collect deeds, and to give me an idea concerning your finances. In fact, I will give you a questionnaire asking you to detail your investments, etc. While I will do your estate plan without all of the detailed information, to do a complete job, I should know the details.

I may also ask you tough questions about your family. I might ask you to separate your family into classifications, like "who is dependable?" and "who isn't?"

I'll throw you a lot of questions, like:

"Who would be an ideal trustee?" "Is she reliable?"

"Who would you trust to raise your children should you pass away?" "He is single and has never had any children -- is he really the best choice?"

While I am an attorney -- I'm still only the attorney. Obviously I don't know your family in the same way that you do. However, I might be forced to ask you questions about your family, your life and illness, and how you perceive the people who are the closest to you. It might sometimes seem that I am being nosy -- but that's far from my mind. The questions are being asked to make you think, and to provide the best service possible.

At the end of the day, however, I have found that my clients experience a near-universal reaction of relief. I often hear them exclaim that they can "now rest easy." This is especially true because -- I believe -- the prime motivation to seek the advice of an estate planning attorney is a sense of loyalty and obligation to others. I have never seen a circumstance where estate planning was done lightly, and I have never seen a a self centered person only living for himself or herself, with an "eat, drink and be merry for tomorrow we will die" worldview, run to an estate planning attorney for an easy afternoon of frolic.

Therefore, relax into the situation, and realize that by doing this you are doing yourself -- and those closest to you -- a tremendous service.

(Graphic hat-tip: www.theispot.com)

The Estate Planning Opportunity

I have heard the refrain so frequently. The initial telephone conversation conversation goes something like this, after I answer the phone:

"Uh, hello. Can I help you?"

"Why, yes. I've never had a will. I have such a small, simple estate. Can you help me? I don't think that it would create any real trouble or effort on your part..."



The conference with the client is quite different, however. The new client might have a prior marriage, and kids from that marriage; there might be a long lost brother. One of my recent clients made an utter mess of the title to their home. Years ago, they entered into in a series of transfers, at one point giving their home (yes, their home!) to a family member. While they eventually recovered a 50% interest in the property, they had no idea what the state of title was on their property. When I first met with them, I did not understand that they were only giving me partial documentation -- not until after I prepared their trust, and was in the process of attempting to fund it.

An estate plan is rarely such an easy thing. Sometimes it is -- sometimes things go smoothly and there is little problem. However, more often than not, there is a glitch. And mind you that someone, sometime, will discover it and be forced to deal with it.

Actually, this is one of the side benefits of estate and financial planning. While we often think and say that we do not want to burden our children, planning one's estate gives us the opportunity to actually do something about it.

So, if you go to an attorney saying that your estate plan is "oh so very simple" -- do not be surprised if isn't so simple. Really, I hope it is simple. But it probably isn't.

Then, you can deal with the problems, and resolve them -- if not for yourself, then for your heirs.

Personal Thoughts and Reports...

I had the privilege of attending the San Gabriel Valley Chapter of the Financial Planning Association, today, to give a talk on defensive actions planners can take to minimize the risk of malpractice claims. My local FPA chapter consists of a fine group of professionals; I had a good time doing the presentation, and I hope that the members found it informative. Later on these pages, I may periodically discuss some of the subjects of my talk, which included a survey of fee-only planners, primarily under the umbrella of the Garrett Planning Network. The survey (which was not scientific and had 46 respondents) shows that nearly half of the respondents were not covered by E & O insurance.

On another front, today the California Court of Appeal issued a published decision in one of my cases, in my client's favor. The issue was what constitutes a "dismissal" for disability under the disability retirement provisions of the County Retirement Law of 1938, specifically interpreting California Government Code Section 31725. A slip opinion for Kelly v. County of Los Angeles can be found on the California Court of Appeal (District Two) website.

Upcoming Malpractice Avoidance Seminar

Next Wednesday on July 26, 2006, I will be presenting a seminar on malpractice avoidance by financial planners, entitled Judo for Financial Planners: Strategies for Avoiding Malpractice Claims, at the San Gabriel Valley Chapter of the Financial Planning Association.

Another Cogent Argument Against the "Death Tax"

Andrew Chamberlain, Gerald Prante and Patrick Fleenor of The Tax Foundation have prepared an excellent analysis advocating the elimination of the estate tax, entitled Death and Taxes: The Economics of the Federal Estate Tax.

(Hat tip: Wills, Trusts & Estate Prof. Blog)

Should I Use a Trust?

Frequently, clients assume that a trust is necessary. After all, there is so much (dis)information out there about estate planning. So the question: Is a trust really cost effective?

Usually.

There are many factors involved, but if you own real estate, or if you have a fairly substantial estate which would be subject to a probate proceeding, a trust may be cost effective if you (1) don't want to hand over a large amount of assets to an attorney, for the fees required to probate a will (2) don't want to hand over a substantial filing fee to the court, and (3) don't want to hand over large sums to pay for an executor or administrator. Also, an estate can take up to a year or more to close. Personally, I am aware of an estate which has been open for sixteen years (by the way -- I am not the attorney for that estate). That's a bit unusual; but it is not unheard of.

The cost of a probate estate is based upon the value of the assets involved. In California, real estate prices have risen substantially. Just a few weeks ago, I was driving in an area of Los Angeles which might have been called a "ghetto" at one time. Whereas even 5 years ago the houses were generally unpainted, unlandscaped and run-down, the neighborhood was turning around: Most had new paint and were being well taken care of. The value of these homes increased substantially over the past few years. It's amazing how private ownership of valuable property is an incentive for the owner to take care of it. But, I digress...

The attorney in a probate proceeding must generally obtain fees through the court, and the amount of fees are governed by statute. A private agreement for fees between attorney and client (if the fees would be in excess of what is allowed by statute) is unenforceable. Denton v. Smith, 101 Cal.App.2d 841 (1951).

Let's say that an estate is valued at $400,000 of probate assets in California. According to the schedule of fees and assuming that all fees are ordinary -- that there are no extraordinary fees involved -- the attorney fees would be in the amount of $11,000 under Probate Code Section 10810. If the executor charges an ordinary fee (and, ignoring the filing fee) the cost would increase by another $11,000 (under Probate Code Section 10800), for a whopping cost of $22,000. Add court allowed extraordinary fees and filing fees, and the amount goes up even more from there. Sometimes, families save on personal representative fees if a family member waives the fee. Still, the sticker-shock is there.


Although the value of an estate may be a factor in the amount of work involved in preparing the documents and funding a trust, the cost of preparing a trust is usually much less. Unlike a probate estate, the cost of preparing a trust is usually based upon the work involved in preparing the documents and funding the trust, rather than the value of the estate, per se. This is not to say that there are not other transaction costs involved with trusts. Generally (again, depending upon the complexity and purposes of the trust), there are costs in administering a trust, particularly after major events -- like the death of the first and second spouses. Even so, the overall cost is generally less.

There are advantages, however, to administering an estate -- court administration has its virtues. However, the costs are generally much less for trusts, which is one of the many reasons why they are so popular.

Update: Jennifer Sawday, Esq. at the California Estate Planning Practice Blog has just posted an informative outline of the probate process, and the California Probate Code attorney's fee schedule.

Estate Tax Redux

Things are looking dim for a Senate compromise on a permanent increase of the estate tax exemption, and a higher applicable exclusion amount exempt from tax. Given the possibility that Republicans may lose power or voting strength this November, raising the exclusion to -- say -- $5 million per individual decedent (instead of the current $2 million) might be the best which can be hoped for. Look for a vote in the next week, or two.

For many of you who do not follow the estate tax roller-coaster, the exclusion amount is set to increase until 2009, then expire in 2010, and then come down to pre-tax relief levels (about $1 million) in 2011.

My theory: this is a long shot in the Senate -- especially given the fact that this is an election year. The Dems have positioned themselves to be the anti-tax reduction party.

If the estate tax remains in it's current wacky state -- with the tax reduction set to "sunset" in 2011 -- don't look for financial and estate planners to shed any crocodile tears. Face it -- many advisors depend upon the insanity of the Internal Revenue Code to make a living...

Estate Planning 101

I am a do-it-yourselfer. I love working around my house: Painting, building, and even stuccoing. But there are exceptions, like plumbing. I hate plumbing.

One thing I have learned about my handyman hobby is that I should expect to buy twice the building materials that I should need to complete the project. Experience tells me that I will use all of those materials. My habit is to try to build the first time, fail, and then to try it again. Almost invariably, I will end up building or fixing up the same thing at least twice – once or twice for practice, and then “for real.”

Some who would never consider fixing a garage door or stuccoing a wall would unthinkingly prepare their own wills and trusts using many materials found in bookstores. Bookstores abound with quick-fix be-your-own-lawyer books and CDs, featuring forms and fill-the-blank forms and programs for wills, trusts, and powers of attorney for healthcare decisions. Some of these materials are even state specific, offering different provisions for residents of different states.

Some of these do-it-yourself materials are fine, and may even be useful. If correctly used, many of these forms might work for a do-it-yourselfer. But suppose your case is different? Suppose you fail to properly use the form?

One thing I have noticed about building materials is that the old rule of thumb generally applies: you get what you pay for. The same is true in estate planning. But it is also true that legal documents such as wills and trusts oftentimes do not “speak” until the author is deceased or incapacitated. Because of this fact, in the case of estate plans the handyman analogy of buying double the building materials breaks down. If a wall is improperly built, it can be torn down and redone. But if a will is improperly drafted, or if it fails to state the intent of the author, there is often no opportunity for a second try. Rather, in many cases, when the author of the will or trust is incapacitated or deceased the planning “solution” either fails, or has completely unexpected and unwanted consequences.

Still, to be a good consumer of legal services, self education is beneficial in communicating needs to an estate planning professional. The following is an overview of some of the major estate planning topics, and which should be applicable in most states

Help! I Must Avoid Probate!

As a youngster, I recall seeing a thick blue booklet in my family’s bookshelf written by Norman F. Dacy, entitled How to Avoid Probate! The book is a classic, and helped to spawn the move within estate planning field away from wills, and toward “living” or “inter vivos” trusts (which is Latin for “during life”).

Some now associate the word “probate” with the twin evils of expense and delay. Many conclude that probate is “bad,” but may not have any idea why this is so, or even what exactly probate is. Simply stated, “probate” is a court-supervised method of transferring property and compensating creditors after death. In California, for instance, there are two main methods of communicating one’s wishes for disposition in a court supervised probate proceeding. The first is through a properly witnessed and executed will. The second method is through a “holographic” (or handwritten) will. To be valid, both types of wills have specific requirements, the details of which are beyond this article.

One myth many have is that a person’s assets will always go “to the state” if he or she dies without a will. This is false. The “intestacy” statutes provide for specific property dispositions in the absence of a will – however, these dispositions may not reach the desired result. For instance, in California should a wife with two adult children by her husband die, the husband would by definition already own one half (1/2) of the community interest of the entire estate. Under the intestacy statutes, the husband would also receive one half (1/2) of the wife’s community share (now, giving him a grand total three fourth’s (3/4ths) share of the total estate of both) and the two adult children would split the remaining one half (1/2) of their mother’s assets. However, this may not be the best: If the children are stingy and well-off adults, the wife might have wanted her entire estate to go to her surviving husband.

Another myth is that probate estates always go on endlessly, and are always horrendously expensive. While estates can be time consuming and expensive, most can be handled in months, depending upon the complexity of the estate, the number of creditors, and other factors such as the trauquility of family relationships. On the other hand, there is certainly truth to the criticism that probate estates can be lengthy affairs: Personally, I am familiar with a probate estate which has been pending since 1991 – for almost 15 years. Also, probate estates can take additional time if there are complicating circumstances like (for example) the heirs are difficult to locate or if there are disputes among family members.

Concerning the issue of expense, in California the ordinary attorneys and personal representative fees are determined by statute, and are set out specifically in the Probate Code. Extraordinary expenses may sometimes be charged, but the court must permit the added expense. Sometimes expenses may be saved if the personal representative waives his or her fee. If the executor or administrator is a family member, rather than an institution or professional, fees are often waived to save expense.

In the final analysis, trusts are usually more expensive than wills to prepare, but wills administered through a court supervised probate are usually more expensive and time consuming than administering a trust. However, at least in California there is another possible alternative: An expedited procedure for small estates (i.e., estates under $100,000, excluding exempted property) which does not require opening and administering a probate estate. Therefore, in some cases opening a probate may not even be necessary.

What About My IRA?

There are many opportunities to give money and assets without a trust, and without going through a probate. For example, a joint account with a right of survivorship is such a “non probate asset.” Such an asset, following the death of one of the account holders, immediately becomes the property of the surviving joint tenant.

Financial assets that allow for beneficiary designations may also pass outside of probate. Assuming that there has been a proper execution of account beneficiary form, Individual Retirement Accounts (IRAs), 401(k) accounts, and other Qualified Retirement Plans (QRPs) generally do not require probate administration. In fact, after years of appreciation within IRA accounts, an IRA beneficiary designation form can often command a large percentage of an overall estate – sometimes even more than a will or trust.

These beneficiary forms are important, although they are often given “short shrift.” While an IRA, for example, may in fact pass to heirs if there is no beneficiary designation, the heirs’ options for taking distributions are much more limited in such a case. There are often tax advantages to beneficiaries taking under a beneficiary designation rather than through an estate administration. Even so, the distribution and succession rules of IRAs are some of the most complex in the tax code and treasury regulations.

Do I Trust Trusts?

Trusts are all the rage – and for good reason. In general, you can avoid the probate court by transferring property to trust. When someone places property into a trust, they transfer ownership to a trustee, who manages and disposes of the property in accordance with the instructions in the trust agreement. Usually, in the case of a fully revocable trust (which means that the trust can be readily amended or revoked) the originators of the trust (called the “trustors” or the “settlors”) are also the trustees. In effect, the trustee in such a case manages his, or her, own money.

When you own your own property outright, you can obviously sell it, lease it, spend it, or save it. Depending upon how it is drafted, the same is true in the case of a settlor who places his property in a fully revocable living trust – the property in such a case may also be sold, spent, or leased. For all practical purposes, the settlor in such a case still owns the property. However, when the settlor dies, his or her successor trustees take over management of the trust, passing the property to the beneficiaries and usually avoiding probate court. A revocable trust of this type, by itself, confers no tax benefit even though there are certain types of trusts, and estate plans, which sometimes can provide such benefits.

Whither Will or Trust?

Like anything, there are pros and cons when choosing between a will and a trust. Most of the pros and cons relate to cost:

· Wills are generally less expensive than trusts to prepare. Trusts are usually more extensive documents, and require property transfers when “funding” them.

· Trusts are usually less expensive to administer than wills. However, probating a will can be expensive, depending upon the size of the estate. While there are costs associated with trust administration, it is usually less expensive than filing a petition to probate a will.

· Depending upon the circumstance, trusts can provide similar benefits as certain types of conservatorships. If a settlor becomes unable to handle his or her own affairs, the successor trustee can step in and make the necessary decisions to manage the settlors’ financial affairs. Wills do not offer this benefit. However, if a person suffers from dementia, for example, a conservatorship “of the person” may still be necessary.

There are benefits to each approach. Also, the law governing wills and trusts may vary from state to state. You should consult with a competent estate planning attorney to choose the right approach for you.

© 2006 Larry D. Stratton