Friday, February 29, 2008

What Casey Serin can teach us

There's a lot of suffering to go around these days with real estate--maybe you're trying to refinance your adjustable rate mortgage before it resets to three times your current payment, or your home equity line of credit has been capped due to your declining home value, or you just escaped your first real estate "flip" deal with $5 profit (which was better than losing your shirt). My firm is retaining a lot more bankruptcy clients these days, who got in over their heads with loans they didn't understand and credit card debt they could never hope to repay.

One person out there makes most of those problems look entirely manageable: Casey Serin. You may have heard of him, but if not, he's a 24-year-old community college dropout (he figured education was beneath him) who had some modest internet fame (or infamy) after his plan to fix and flip 10 homes and make huge profits instead left him with $2 million in debt and a lot of foreclosures. His ingenious plan involved borrowing more than the houses were worth, at rates of up to 14%, and then resell the homes at huge profits. Instead, he lost some money to unscrupulous contractors, spent $30,000 on get-rich-quick seminars, went to Hawaii, and lost the homes to foreclosure. OK, he did sell one, for a modest profit, whose buyer then actually upgraded the home and made the profit Casey was expecting to make. Where did he go wrong? There are a lot of factors, including his laziness (he considered himself an "ideas guy" who could direct others to make his ideas reality), lack of any business plan, geographic problems (the houses were spread out over several states), lack of experience and hubris. And, had he done the buying even a year or two earlier, the market may have continued rising enough to at least covered his losses.

Once he realized he was not the entrepreneur he thought he was, he started blogging at http://www.iamfacingforeclosure.com. I credit him with opening himself up to the criticism he received, especially because some people on the internet use the cloak of anonymity to say incredibly cruel things. He's gone quiet now, and sold the blog (I'm not sure how much, but maybe around $30,000, so he's still deep in the hole). He also didn't seem to be learning as quick as he should, as his last posts dealt with his plans to make big money in penny stocks and look for investors for new real estate purchases. If you'd like to know more about him, just try a Google search on his name--he inspired a lot of writing and even a Dr. Phil appearance.

I mention Casey 1) to make you feel better about your own real estate investments or lack thereof, and 2) consider your current estate plan. Just as someone reminded us years ago that we all have a little Elvis in us, I'd say we all have a little Casey in us too.

So, how much Casey is in your successor trustee? Some of the things I've seen trustees lose colossal amounts of money on include restaurants, real estate, technology stocks and loans to "friends." Consider a more prudent person as trustee, or a professional trustee.

How much Casey is in your beneficiaries? Many of them have big plans for the money, with no experience to guide them. I've seen many benes lose their inheritance to cars, bad business deals, overleveraged real estate and even the Nigerian scams. Giving them the income while keeping the principal in trust may be a good idea, or at least breaking up the distributions over time to allow them to learn life's hard lessons with a little money instead of a lot.

How much Casey is in your beneficiary's spouse? How strong is your beneficiary when it comes to saying no to their spouse's bad financial ideas/fabulous home expansion plans/72% annualized return investments? Remember, Casey's (now ex-) wife is also on the hook for his dreams-turned-$2 million debt.

Wednesday, February 27, 2008

Your Legacy

I just finished watching "My Father, the Genius", a documentary film. The project began when Glen Howard Small, an architect, shared his will with his daughter, Lucia Small, a television producer and documentary filmmaker. In it, he asked that she write his biography to ensure his lasting architectural legacy. She instead asked if she could film it instead, and have it cover the whole of his life, not just his architecture. The result was a healing and learning experience for both of them--his leaving the family at a young age and his subsequent relationship problems with women had left her with many questions, and he had no idea how conflicted his daughter was about him. In making the film, she explored his early prominence as a forward-thinking architect and founder of a now prominent architecture school, as well as his stubbornness and refusal to play "office politics," which led to his ouster from the school, three failed marriages, five estranged children and begging for work. You'll have to see it to see what happens, but I can say it brought the family closer together and was excellent in forcing discussions about issues that he may have otherwise taken to his grave.

While we're not all documentary filmmakers, it's a good example of why I like the entire family to be involved, in some aspect, in the estate planning process. (As an aside, there are companies that prepare documentaries to capture family histories.) I realize that the people leaving the money have the complete freedom to do what they choose to do, which is as it should be. I just think there's a much higher chance for success of the plan when the reasons for making it are explained. Otherwise, children and other beneficiaries can be hurt when they don't understand why they're getting what they're getting, or why they have to wait to get it, or why charitable gifts are involved. The best estate plans allow for the goals, hopes, dreams and aspirations of their makers, and they communicate them as well. Some explanation of the reasoning behind decisions can turn a potential trust contestant into a trust proponent.

It also can lead to some creative solutions for taking care of everybody. People aren't always aware that they can leave money to their children while also providing for their spouse. They aren't always aware they can leave funds in a special needs trust to provide for disabled beneficiaries without disturbing their government benefits. They may not know they can protect their children's inheritance from creditors, tax liens, spouses or even the children themselves. As a consequence, they may cut out people entirely, causing needless hurt feelings and heirs who stop talking to each other.

Openness also helps when disability or death strikes--the designated people will know who to call and what to do, and the others will not feel left out of the process wondering whether the trustee is up to no good.

One last note: have your attorney keep a copy of your estate planning documents and leave the attorney's information with your important papers and with beneficiaries. That way, people will have access to the current documents (only when they're needed), and heirs who happen upon the will/trust first and don't like what they see can't "lose" the will/trust. This happens more often than you'd think, so have a backup plan.

Tuesday, February 12, 2008

That will never happen to me...

I used to be confident of many things when I was a younger lawyer: trust companies cost too much and give bad service, I would live a conflict-free life and not have to worry about Alzheimer's disease and my family would never have any soap-opera type of drama. Now that I've lived a while, I realize the error of my ways. I see trust companies providing much better service than they used to while providing better overall returns for beneficiaries than family members. I see that if I make it past 80 years old without a massive stroke, some type of dementia is a real possibility. I've also seen some drama in my family that I would have expected on "Melrose Place." And now I'm not surprised to see drama in the families I counsel now either.

People like to say that money is the root of all evil. I'm familiar with hearing that in the church--it comes from people who take pride in "depending on God for all my needs," which often is said with an open palm extended, because they don't mind other people having that evil money. After all, who else will God direct to them to supply their needs with that evil money? But I digress. The correct phrase, from the book of Timothy in the Bible, is "the love of money is the root of all evil." Money isn't the bad thing, especially because it's necessary to survive. However, we all know that what we have doesn't usually feel like enough, so then what do we do to get more money? Unfortunately, many people faced with that question choose "evil" shortcuts.

In my area of practice, trusts and estates, the shortcuts usually take the form of finding people with money and taking it from them somehow. People anoint themselves as Robin Hood and also anoint themselves as the "poor" who get the money. Finding these schemes and unraveling them is a good part of what makes my job rewarding (and fun). Preventing these schemes is also a great part of my job.

The first step in prevention is knowing that if you have assets, people will want to take them. You may think you're not related to anybody who would even think such a thing, or would never allow people in your life who could do such a thing. You may be right, but if you're wrong and haven't protected yourself, getting your money back is expensive, if still possible.

So, who
would do such a thing? The cut-rate, unbonded caretaker who thinks he/she deserves more. The helpful neighbor who slowly gets access to all areas of your life and slowly cuts off your access to other people. The son on disability who may or may not be recovered from his drug problem and has a girlfriend who'd really like a new car. The not-so-bright daughter who gets her investment advice (for your money) from dubious sources on the internet. The son-in-law who needs funding for his future real estate empire. The former student whose business ventures are forever just around the corner from sure success. The caretaker "mother/nephew" team who turn out to be lovers and writing their paychecks for $10,000 per month each. The "mother/daughter" wanting to be added on title to your property, who also turn out to be unrelated and lovers--incredibly, this one, like all the previous examples, is true, and happened to one of the nicest, most down-to-earth guys I know. Not all these Robin Hoods were professional scammers, but you can bet their skills get better with each victim. And the victims cover the economic, intellectual, racial and psychological spectrum--everyone is a potential target. These Robin Hoods look for people who are at a vulnerable place in their lives, and we all have the potential to be in that situation.

Once recent case concerns a possible heir who was born to a married couple but was most likely not fathered by the husband. That in itself is not uncommon, but then it's complicated even more in that it looks like the "heir" trying to claim the estate is not really her at all, but one (or perhaps several) imposters! It appears three different people claiming to be her have shown up at three different court hearings. She may be disqualified in more ways than one.

Thus, if you're fortunate or foresighted enough to have accumulated some wealth in this lifetime, someone (who may appear completely genuine and loving) wants to take it. How do you protect it? First, know that you can take of people without making them owners of your stuff. They can be in your will, or beneficiaries of insurance polices/retirement plans/bank accounts, or trust beneficiaries--these are good options because they're all revocable. You can change them later if you want to, and you maintain control while you're alive. You should consider naming professionals as your successor Trustees. They'll charge the same fees as your friend/relative/CPA would, but they're licensed, insured, bonded and have become very good at what they do. And if they're not doing a good job, the trust can provide mechanisms to remove them easily and replace them with professionals who will. If you don't name professionals, at least consider who the "watchdog" of your trustee(s) will be.

Also, your advisors (financial advisor, accountant, insurance, and even your pastor) should know you well enough to try and get help when they suspect something's not right. We're all used to managing our assets ourselves, but my work has taught me that there will come a day, if I live long enough, that I am no longer able to do so. I've planned for that day, and you should plan for that day too.

As for protecting your beneficiaries, you can leave money to your children in trust--they can receive a nice chunk of income, and distributions for specific purposes, but the principal assets will be locked safely in a trust from their creditors and predators. This doesn't even have to deprive them--they can live in a house owned by the trust, drive a car owned by the trust, and live off income from the trust. They can even have a hand in investing the trust assets.

I hope you'll never need the safety measures, but please see an attorney about making sure they're in place. And if your new girlfriend's daughter looks a bit older than you'd expect, and is just a little too close to Mom, you have a right to be suspicious.

Thursday, February 7, 2008

Getting the best results in probate/trust litigation

For anyone who hasn't seen it yet, "Celebrity Rehab" on VH1 is an intense experience. It's much more serious than "Flavor of Love," and much more real. What struck me the most after watching it were the moments of truth--the patients stopping the minimizing of their addictions and revealing the traumatic experiences in their pasts that seem to lead to the addiction. The patient must drop his/her facade and admit some ugly truths, which leads to recovery. It also reveals that taking care of the addiction means taking care of the root problem that caused the addiction. These are people who fooled the rest of the world, for years, into thinking they had their lives under control and had no demons.

In probate litigation, getting to the root of the problem is key. Still, when clients first come in, they may present a completely different set of concerns. They also tend not to reveal any ugly truths about themselves. I've developed a pretty good radar over the years, after being misled by so many people. If the first story I hear doesn't make logical sense, there's going to be more and it's most likely not flattering--this could be their past/current jail/prison time, the restraining order against them for crazy threats, misappropriation of funds or their desire to misappropriate some funds. It's a lot like a first date--you won't know what that person's really like until several dates later.

Most people don't want to admit that a large part of what they're seeking is money--they think they'll sound greedy. In this arena, it's perfectly OK to talk about money, as the best result in a probate court case is a fair division of the money and other assets. It doesn't make you a bad person, just a normal one. And I'd rather not be surprised at mediation to find out you really in fact do want your fair share of the estate. Actually, after this many years of practice, I just operate on the assumption that you want your share. If some evil caretaker/brother/sister/stepfather/stepmother/tennis pro took my parents' estate, I'd want it back too!

The other hidden motives may have nothing to do with money, but are important to understand when trying to reach a fair settlement. People often find themselves fighting in probate court over years-old problems: a missed invitation to a Christmas dinner, not enough respect shown to a new spouse, not sharing a limousine at the funeral, feelings that a sibling received too much in gifts/help over the years, the husband who didn't let his second wife know he was still in love with and intimate with his first wife, the secret illegitimate children (who are full and legitimate heirs under the law), adopted vs. natural children, and in one case, the theft of a coin collection 20 years prior that mother decided to let go. These injustices smolder for years, and then explode after someone's death. They may have been keeping the peace until Mom dies, then all of a sudden it's "You owe me for that @(#)$*@#)*$ coin collection, you @#)($*@#)(*!"

Unfortunately, litigation will not right these wrongs. Nor do judges have any patience for, or interest in, these wrongs. The mediation process, however, does allow for some airing of grievances--this often proves cathartic and leads to a good settlement. People pretend they're above such feelings, but they're not. I hope I could forgive my brother for getting a better bike than me for Christmas in 1977, but I may not be able to. And like most children (adult or otherwise) I see, both my brother and I are sure that our parents loved the other one more. We're probably both right.

In the end, I wish professional therapy was part of the process. I'm wanting to involve it as part of my process, at least in some cases, precisely because the legal system can't fix emotional hurts. But addressing the emotional hurts means a better chance at resolving the legal dispute.

One final thing: it also helps to be veeeeeeeeeeeeeeeeeeeery honest with your lawyer when you're preparing your will and trust. Try to anticipate what the problems will be after your death. Don't worry about scaring or offending us, we've most likely heard worse. And it means an estate plan that's less likely to wind up in court later. It can seem daunting when you have second (or eighth) spouses, drug-addicted children, tax evaders, gamblers and reality-TV stars as beneficiaries, but there are excellent ways to take care of all of them.

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