Taking Time to Stop and Smell the Roses
July 22, 2010
(You may have noticed that our site was recently attacked by malware. My team has diligently worked to remove the offending virus and added new software to protect against a recurrence of such attacks. I hope you will enjoy our once again virus free website.)
Sandy and I recently took a rare weekend off and spent a couple of days in Del Mar where we spent some time attending an estate planning conference, but mostly we enjoyed the sunsets and the good food at Jake’s on the beach (probably our favorite place to have good food and people-watch) near downtown Del Mar. A wonderful eclectic mix of old and young California families were picnicking and surfing. There truly was something for everyone—as typified by Sandy wearing both a jacket and a sweater as protection against the cool ocean breezes while I reveled in my shorts, tee, and sandals thinking of the 115 degrees back in the Valley.
Watching families in Del Mar—an old established community that remains vibrant with people of every age—playing, shopping, eating, and just enjoying themselves, always reminds me of the importance of the generations and the estate planning that I do. Although adherence to technical standards may be the sine qua non of my practice, it is the assurance of family legacies and their accumulated wealth that is the reason for what I do.
On the return trip Sunday, we took a scenic inland route up to Indio through horse and farm country far different than the opulence of the coastal communities. The sense of hard work emanating from the scenery, the small businesses, the communities dedicated to ranching and farming reinforced my own dedication to making sure that I remember why I do what I do. It was every bit as intoxicating as the cool ocean breezes. Two lane country roads running through a different California than viewed from the freeway, yet co-existing with the bustle just a few miles away, is a metaphor for life and the differences each of us bring to our relationships.
I returned to work refreshed and ready to tackle the problems of the day with a renewed vigor and a fresh perspective. Our trip was a much needed holiday for which I am truly grateful.
Does Your Arizona Estate Planner Know Your Concerns and Your Family?
May 6, 2010
Is your estate planner a trusted advisor or a guerilla problem solver? Does he see you as a person or merely a bank account?
All too often lawyers or others billing themselves as “estate planners” perceive that you want the lowest cost, lowest maintenance product available so you can feel comforted that you have an estate plan.
This attitude has developed over time because many people believe an estate plan is a simple document to prevent the government from taking money that rightfully belongs to their children, when actually—if done correctly—it can be a comprehensive tool for passing on values and leaving a legacy for future generations.
I believe this is what estate planning has always been, but recently the advent of word processing and the internet has made it too easy for non-lawyers to peddle slick material by the ream, instead of providing you with personal attention and actual content and value. The internet is great for disseminating information on a wide variety of topics, but it is also the domain of predators who will sell you a boiler plate documents without any input from you other than your names. These documents may not even adhere to Arizona laws, and they come with voluminous instructions on what to do to make your plan effective.
If you have specialized legal training that qualifies you to understand what you are buying, how to make it work, and how to fix it if it doesn’t work, then the “estate plan in a box” may be for you; but if you have worked a lifetime gaining knowledge and experience in a different chosen field then you can appreciate the importance of using professionals to help you through what could be, if not the most important, certainly the longest lasting decision you will ever make.
Thus my leading question: Does your estate planner really know you?
In my practice I begin with a list of 20 important concerns and ask you to prioritize them so that your estate plan reflects your personal intentions.
I continue with 18 specific questions about your family to help me become familiar with your unique situation.
And if the situation calls for it, I follow up with a detailed fact finder that allows you to describe your values and explain how you developed the attitudes and values you have and how to pass these along to your descendants.
I use the information I have gathered to weave a rich tapestry of an estate plan, with a trust that will be a tax efficient and purposeful. My staff will work with you to re-title assets and confirm that all your assets are integrated into your plan so that the administration of your estate proceeds in an orderly and compassionate fashion.
I have more than 30 years experience as a lawyer and am well versed on estate tax planning, treatment of IRAs and other qualified retirement plans, and I study emerging strategies that may or may not use life insurance depending on your needs. I can help sharpen your focus on how best to employ your resources to accomplish your hopes, dreams, and aspirations.
If you believe you are more than the money you have, we should meet.
Contact me today (or leave a comment with your e-mail address) and I will send you, without any further obligation, my list of 20 concerns, my 18 family questions, and my “You’re More Than Money” questionnaire.
It’s Going to Cost Me What?? (The Automobile Analogy to Updating Your Trust)
March 24, 2010
It happened again. After telling the audience at a recent seminar that trusts really are living documents that need to be updated periodically, I was approached by several attendees afterward asking if I really meant their trust needed to be updated. After all, they only want to make minor changes; they don’t need anything big; their trust was created by a very good attorney.
That’s when I told them that any trust needs to be reviewed regularly, no matter how good the attorney or the trust. People change, lives change, and laws change—and any of these changes could affect your trust. In fact, I recommend that my own clients review their trusts annually and update their trusts every 2 to 3 years, if for no other reason than because I am a better attorney today than I was yesterday and can do more to protect them and their families.
People are often surprised when I tell them that the cost of updating their trust can be as much as they paid for their entire trust several years ago. They don’t understand why an “update” is so involved and expensive. This reaction led me to an epiphany.
These folks understand “update” differently. When a client hears “update,” they think minor modifications: changes to the people named, the trustees, or distributions. These “modifications” are like getting the oil changed and the tires rotated on your car. They are items that need regular maintenance.
An “update”, however, is much more comprehensive; it includes changes that take into consideration:
- Tax law changes,
- State law and asset protection changes,
- Changes affecting how the trustees manage and distribute your money,
- Incorporation of new ideas,
- Plugging holes in old legal thinking that plagued older documents, and
- The most current thinking of over 1,000 lawyers
An “update” is trading in your worn out used car for a newer model that performs better. The standard provisions have been re-engineered to perform better. “Updating” your trust in my office means you are getting the best protection for your family, and your hopes, dreams, and aspirations.
As a trust based estate planner I aspire to show you the benefits of making modifications when necessary, and updating when the benefits of using modern language insure the result you desire and deserve.
If you are happy with your old car and just need an oil change or new tires, don’t buy a new car; but if a new car appeals to you, it will be a good value. Is the cost too much? Absolutely not, but sticker shock is a powerful emotion.
Can I “sell” a Chevrolet for the same price as a Cadillac? No, and I don’t want to; a Chevrolet might be right for your family and your budget – it will provide a reliable result if you have no special circumstances, hopes, or aspirations. However, I don’t often advocate in favor of a Chevrolet because experience teaches me that in an alarming number of cases the Chevy will fail when you need it most—after you die. No one wants an out of warranty repair bill.
My personal satisfaction and passion comes from making sure you understand the choice you are making. As long as you see both the Chevrolet and the Cadillac for what they are and choose the one that provides you the best value, we will both be happy.
In my next post I’ll give some concrete examples describing why my constantly improving Cadillac trust is a better value than your current vintage Chevrolet trust.
Leaving A Legacy: Estate Planning Is Not Just About Money
December 2, 2009
I know this title seems strange.
Almost everyone thinks they need an estate plan to insure the comfortable transition of their money. With few exceptions, I feel that my clients are burdened with the prospect of making decisions about how to pass along their accumulated wealth. It drives home the point of why the fear based selling I studiously avoid is so compelling.
You’ve worked a lifetime building up not only a fortress of wealth, but also building a legacy of values. If you believe in the adage “give a man a fish you feed him for 1 day, but teach a man to fish and you’ve fed him for a lifetime,” I have an idea for you.
I read an article not too long ago about family harmony which also described the challenges of leaving a family business when only some of the beneficiaries are interested in the business and the others are not. The need for life insurance to be sure that the child who runs the business can keep the business was one of the lessons of the article, but there are others.
The key is not to consider the amount of your accumulated wealth in terms of dollars, but in terms of value and legacy. It won’t be much of a legacy if 10 years after your death, the children are still fighting over how to divide your most prized asset when the real fight might be about who loved whom more.
Once the discussion turns to your values and legacy, it is easier to understand the true importance of estate planning.
One of my favorite clients repeatedly drives home the point that he is not interested in controlling the lives of his family from the grave. While he is completely at peace with his decisions, I struggle with the concept of letting grandchildren control their substantial inheritances at age 18.
Because he started with nothing and became a true giant, first in his industry and then in philanthropy, he believes everyone can. Actually, I shouldn’t say he started with nothing. I should say he started with no money. He obviously had an abundance of something that drove him to success. He built an industry leading company, he married a woman to whom he was mutually devoted for many years and had 3 children, each of whom he is proud of in their own unique way. He pursued his passions at what for me was a dizzying pace and he is conflicted that more attention is given to the money he contributes than the non-monetary contributions to the fields of those he chooses to honor.
He doesn’t understand why I don’t share his abiding confidence in his grandchildren and he dismisses my dire predictions that most wealth is dissipated in less than 3 generations. Then I realized that I’m the one who doesn’t understand.
You see, my prescription for the malady of inherited wealth being wasted is to lock it up in trust and dribble it out over the generations. His plan is to be a venture capitalist – give the money to his descendants and let them learn how to use it. Do good or dissipate it – either way, he believes the value of the lesson is more valuable than the security the money can provide and for him, estate planning really isn’t about the money.
We philosophically wrestle with the ease with which he is willing to let his children and grandchildren make their own mistakes. With a Zen-like countenance, he repeats his mantra that “money is only a tool.”
I’m still learning, but I think he means that the lessons learned from making mistakes are more valuable than the money itself. Judging from the mistakes he has shared with me, intellectually I know he is right; although deep in my legally trained gut it is still difficult to accept.
For my client and friend, estate planning is not about money. He is blessed with an uncommon grasp of the meaning of a life well spent. I hope I can help all my clients pass on their own unique ideas and values to their loved ones along with any financial inheritance. But even more, I hope I can hold onto this valuable lesson. Because the truth is, I learn more from some of my clients than they learn from me.
The Perils of Probate, Part Two
November 25, 2009
In my last blog post I described the emotional and practical reasons why there is so much probate litigation and how to hire an experienced probate litigator; in this post I’ll mention some common contested probate allegations and measures that can be taken to avoid them or to keep them from spiraling out of control.
The Will is invalid because the testator was incompetent. Competency is a complicated issue. My friend Jay Polk has written a treatise that is more than 100 pages long describing the different tests for competency in different probate settings. For a will to be valid, the maker of the Will called the “testator” must meet 3 tests:
- The ability to know the nature and extent of his property;
- The ability to know his relation to the persons who are the natural objects of his bounty and whose interests are affected by the terms of the instrument; and
- The ability to understand the nature of the testamentary act.
This is fertile ground for disputes and must be determined on a case by case basis which is what makes such contests expensive. Often a forensic geriatric psychologist testifies after reviewing the medical records, and treating physicians may be called to testify with varying degrees of success depending on the nature of their specialty and the degree of contact. Lay witnesses and the nature of the Will itself may be important elements of proving a testator’s competence. In the end it is a facts-and-circumstances decision for which very little assurance can be given at the beginning of the case; even in some of the more outrageous cases.
Undue influence was exerted on the testator. The second most popular reason for litigation is an allegation that someone exerted undue influence on the testator so that the Will does not represent the testator’s true intentions. Any time property is not left strictly to bloodline descendants in equal shares, this issue may arise. Expensive battles ensue over whom Mom loved best or who took care of Mom. Just about any fact pattern can support a good faith belief of undue influence, but changes to an estate plan on a death bed or after entry into a care facility are particularly fertile fields for such claims.
The original Will cannot be found. This is not often asserted in Arizona because a copy of the Will can be admitted to probate if certain conditions proving its authenticity exist. But it can lead to a full contested matter as to whether those conditions exist.
The Personal Representative is not fairly liquidating or distributing the assets of the testator. An increasingly common concern is that the person selected to administer and distribute the estate does not do so either in a timely or equitable manner. Unlike the issues described above, this is an issue that arises only after the probate has been opened and the administration has not proceeded the way a distributee expected or desired. Although efforts to remove the Personal Representative are common, those actions seldom end well for anybody and it is more common to get a court order compelling the Personal Representative to complete the work.
All of these issues could be avoided or minimized if the testator began early enough to make and update a plan, and kept all the distributees informed along the way. Because disaffected relations are so common, the best prevention is to have a clear Will or trust that leaves little room for dispute, and name a Personal Representative whose loyalty and understanding of the complex family relationships is unquestioned.
Even in the best of circumstances, probate contests are inevitable and the best results are often obtained when the parties are reasonable, think about the result before engaging, and pursue a course that is likely in the end to be the most palatable to all litigants. Otherwise, a full blown Will contest will be expensive and protracted.
The Perils of Probate, Part One
November 18, 2009
Probate litigation is a burgeoning and fertile practice area for lawyers. There are many reasons why probate cases spawn litigation, but most grow from inadequate or defective estate plans nurtured by emotional dissatisfaction or greed.
As an estate planner since 1979, I encourage my clients to create an estate plan that takes into consideration not only the nature and size of their estate, but the hopes, dreams, aspirations and the character of their heirs and others interested in their estate.
If all goes as intended, everyone is either satisfied or at least left without reasonable grounds to become embroiled in an expensive controversy. However, all too often, estate plans are not properly implemented–with costly and often destructive results.
Leo Tolstoy opens Anna Karenina (1961) with the now famous saying “All happy families are like one another, each unhappy family is unhappy in its own way.” That sums up probate and probate litigation. Well adjusted families come together after the death of a patriarch or a matriarch to console one another and then transition the wealth remaining after paying the bills in accordance with the decedent’s intentions expressed by a Last Will and Testament, a trust, or variety of other devices using beneficiary designations.
On the other hand, in contested probate matters, the litigants are often distantly related or not related and often don’t even know one another. They seldom share a functional emotional bond and they have no familial reason to reach a reasonable solution.
As a result, other feelings become paramount, usually greed, but sometimes hurt emotional feelings that remain unresolved interfere in rational thinking. The process frequently snowballs out of anxiety and lack of good information. Usually the emotions, greed or otherwise, escalate before the litigants seek legal counsel and the litigants become emotionally entrenched in their positions, however unreasonable. This phenomena was recently explored in an Augusta Chronicle article that described why a current estate plan was crucial to avoiding probate contests.
Lawyers are served up on the horns of a dilemma. Their new client is entitled to competent legal representation and such representation may cost more than the amount in controversy. Litigation is expensive with probate litigation fees for experienced counsel often between $300 and $400 an hour. Additional experts are usually required. If the competency of the decedent or the due execution of the Last Will and Testament is involved, there will be doctors and other experts involved, as well as fact witnesses to be deposed. Litigants need to be aware of the potential costs before proceeding; and rational solutions–however unfair–suggest themselves when a small amount of money or property is in question.
Mediation is often a good solution, and most efficient if conducted early in the litigation before legal fees and costs run amuck.
A litigant’s best friend is an experienced lawyer who understands the probate process and the probate law, who can reasonably forecast the likely results, and who works toward that result in as uncomplicated a manner as possible. In addition to the usual questions about how the lawyer charges, how long he has practiced law, and what qualifies him or her to represent you in this matter, good questions to ask before hiring a lawyer for a contested probate matter include:
- Describe your specific recent experience in probate matters.
- How much of your practice is devoted to probate litigation?
- What do you do the rest of the time?
- After hearing my side of the story, what else do you want to know before forming an opinion of likely outcomes?
- Based only on my story, what do you perceive to be the most likely outcome and what other outcomes are reasonably possible?
- What factors determine my total overall cost and what do you reasonably expect the cost to be if the case follows the path you anticipate?
- If more than 1 lawyer is to work on my case, how will those lawyers bill for their time?
- What additional facts would change your mind about the outcome or the cost?
- Do you carry malpractice insurance and if so in what limits?
- Have you ever been subject to professional discipline? And if so, explain.
In my next post, I will explain some of the common types of contested probate litigation and how to avoid them.
Forever to Never Retirement Accounts
November 11, 2009
Does never paying income tax on your retirement income sound too good to be true? Well believe it, because on or after January 4, 2010, anyone can convert their traditional IRA to a Roth IRA, pay the taxes in 2 installments in October 2011 and October 2012 and never again pay income tax on any amount ever withdrawn from the account.
Should you do it? Kiplinger’s explains the benefits of the Roth IRA. With stocks down from historical highs and tax rates at all time historical lows, now is the best time to convert to this long term investment strategy. Read Kiplinger’s explanation of when to switch.
Before 2010, high earners were prohibited from establishing or converting to a Roth account, but no more. And for 1 year only, the tax can be paid in 2 installments, stretching the due date on half of the taxes due until the extended due date of their 2011 tax return!
But wait, there’s more information that hasn’t been widely disseminated! If the value of the account goes down before the extended due date on the 2010 return, you can reconvert back to a traditional IRA, pay no tax until the money is withdrawn and then convert the lower amount back to a Roth account the following year.
If you believe the value of the stretch out over your lifetime outweighs the benefit of paying the tax over 2 years, 22 and 34 months after you’ve converted, think about this – If your tax and financial advisors haven’t told you (1) about this opportunity and that (2) income taxes are at an all time historically low rate and headed nowhere but up, you should ask.
Because of the unique features of Roth IRAs, no minimum required distributions during your lifetime, MRD for your beneficiary, no taxes on any of the money withdrawn from the account, you have a once in a lifetime opportunity to make a tax decision that will benefit you, your spouse, and your descendants by protecting your nest egg from ever being subject to income tax again. And by paying the tax in advance at the lowest historical rates, you are also reducing potential estate taxes.
With all of these benefits, shouldn’t you at least be considering a Roth IRA?
Who Doesn’t Need a Trust?
October 21, 2009
I am a trust based estate planning attorney. That means for a variety of reasons, I believe that most clients are best served if the centerpiece of their estate plan is a trust.
However, that said, a friend who recommends my services to his clients recently complained that after extolling the virtues of trusts and my services to his clients, he discovered that I had not recommended a trust based estate plan. He wondered aloud if I had wandered from the true path.
Because in 1995 Arizona was the first among, at last count, 12 states to create a beneficiary deed statute, you may pass your assets at your death without a Will or a Trust. Using a combination of a beneficiary deed for each parcel of real property, transfer or payable on death (TOD or POD) designations for investment or bank accounts, and naming competent adults in your beneficiary designations for retirement accounts, life insurance policies, and annuity contracts, you can avoid both probate and a trust administration. Using an affidavit for collection of personal property will allow motor vehicles to be transferred and other items such as jewelry and collectibles can be distributed among your heirs by agreement.
This plan can work well for you if the objects of your bounty are competent adults without spendthrift habits or creditor problems and, in the case of real estate transfers, if the several recipients will cooperate with each other. The problem is that in many families more structure is necessary to handle interfamily affairs and personalities and in some cases lifetime protective trusts will benefit your family more than the simplicity of the “no trust” or “no probate” plan described above.
The plan takes some prior thought and regular periodic review if you acquire new assets or the characteristics of your intended recipients change, but all other things being equal, these arrangements with adequate financial and health care powers of attorney may be all you need to have a viable estate plan. I encourage you to also have a Will that will be effective if necessary to address unforeseen circumstances or otherwise omitted assets, but in all likelihood, no probate proceeding will be required and the Will will not be used.
Of course if you don’t fit the typical profile or have additional concerns, then you will be better served by a good inter vivos trust as part of your plan and you’ll make my friend happy.