Tuesday, July 13, 2010

Heirlooms

Ellen Lupton writes in the New York Times about "How to Lose a Legacy." In part, it deals with the heirlooms passed on from generation to generation, and the sentiment, or lack of it, that passes as well.

Where your treasures go is an important part of the estate planning process, as these items can lead to fights, or just outright theft--I'm aware of one estate that was plundered by a daughter who backed the U-Haul truck up to the house and emptied it while the rest of the family was at the funeral.

If dispositions aren't clear, there may be several people claiming "She told me she wanted me to have it!"

It helps to have someone like an executor or trustee with the authority to decide where things go in disputes, and under recent California law, you can leave a memorandum with instructions for where items should go--unlike a will or trust, the memorandum is simple to update as you gather more (or give away more) stuff.

It seems every third estate has a coin collection that was promised to multiple people, so be sure your plan is clear about your stuff!

Wednesday, July 7, 2010

What if I have uncollected child and spousal support from 1960?

Can I still collect it? Yes! If uncollected, and the order mandating it hasn't been modified, the law protects you, even after all these years. There are some defenses to paying the spousal support, but not the child support, and we're filing a case on this issue. For various (and good) reasons, they had not tried formally collecting until now, shortly after the man's death.

His death means the claim needs to be acted upon within a year, but the law does have several protections and priorities for child and spousal support claims, so don't give up!

The interest accrues from the date of the order, so that helps too, especially if it's from 1960.

Special Needs Trusts

I had dinner a couple of weeks ago with a terrific trust officer from Wells Fargo trust services, who was frustrated that a personal injury settlement of several million dollars was divided into a large structured settlement and a very small special needs trust. Her client, the injured party, wanted to have a house, which would disqualify him from benefits he needed. There wasn't enough money in the trust to purchase it, and the structured settlement funds, if used, would disqualify him. If the settlement had been placed in the trust at the beginning, they wouldn't have this problem, and it was now too late to fix it.

People understand the power of special needs trusts much more than they used to, but it's a tricky area and not yet understood. I'll be speaking in August about this issue for parents, whether the funds are from themselves or from a settlement, at the NAPA Center in Los Angeles. If you'd like to know more, please contact Cassandra Hanson in our office at (626) 683-8869.

Thursday, June 17, 2010

Eyes wide open: The key to effective estate planning and asset protection



Here's the text of an article I wrote that appeared in today's Los Angeles Daily Journal, with some advice on where not to put your money (or your heart):


One of our firm’s maxims is “Don’t marry a stripper.” You may laugh, but we’ve seen a number of men (and women) come into our office after waking up to find their car, cash, bank account, collectibles and new wife or husband have all mysteriously disappeared. The once-besotted and now justifiably infuriated victim may have thought the object of his or her infatuation had a heart of gold and could be trusted, but experience in the law, let alone human history, tells us otherwise.


Another of our maxims is “Money’s not safe in a safe.” Sure, our banking system has taken some hits lately, but it is still quite surprising how many people squirrel away tens or even hundreds of thousands of dollars under the mattress, in linen closets and beneath floorboards. We’re not just talking gang bangers here, but people from all walks of life. And while a massive black safe in the garage may offer greater protection than a cookie jar during its owner’s lifetime, what about after the owner passes away or becomes incapacitated?


Unfortunately, the owner has typically informed a “trusted” family member or friend about the stash of cash, and in the case of a safe, provided the combination. When the rightful heirs open the safe, everyone is stunned to find the money, jewelry, coins, baseball cards and (gasp) the Star Wars action figures long gone. Even if the heirs have a good idea of who took everything, the burden of proof is on the executor, trustee or heirs themselves to not only prove who took it, but also how much was taken. Without a paper trail, it’s almost impossible.


So if a spouse turns out to be unreliable and a safe isn’t safe enough, who or what can an individual trust? Who can help ensure hard-earned wealth is protected and wishes carried out regarding the administration and/or distribution of assets in the event of incapacity or death? Can the trustee even be trusted?



You have to trust someone, don’t you?


Estate planning is often viewed as one of the gentler practice areas of the law, and perhaps it is. However, you still see plenty of tragedy. I probably see more of this than the average estate planning attorney because our firm is large, highly diverse and focuses on a variety of practice areas, including family law and probate litigation. Our attorneys often represent clients who did not come to us for estate planning initially, but are now seeking counsel because they are in danger of losing many or all of their assets to divorce, a contested will, improper administration of a trust, probate problems and more. For example, one of our litigators had a prospective client come in seeking redress from a sibling who had been named trustee of the family’s estate, and had even been allowed to create the trust herself. This trustee used the proceeds from the trust to open a restaurant, which subsequently folded, taking all of the siblings’ money with it. Since she lacked insurance, and had filed for bankruptcy herself, the money, sadly, was gone for good.


Or consider this: a kindhearted divorcee with young children wills his well-educated brother the family’s homestead. After the divorcee’s passing, his brother transfers title of the home to himself and then borrows against the equity. Unfortunately, the brother suffers several business setbacks, loses the money he borrowed and the house eventually goes into foreclosure.


Given that situations like these happen quite often, who can someone trust to manage his or her affairs in the event of incapacity or after death? This is one of the most difficult questions facing any individual or family. Many of our clients initially think of a close family member, particularly a son or daughter. This choice gives rise to a number of questions, which we invariably raise with our clients. Does the son or daughter have the time and knowledge to administer a trust, let alone a large estate? What about the daughter or son-in-law—can they be trusted? In the event of a child’s divorce and remarriage, will the client’s wishes still be carried out with respect to grandchildren? If you name one child as executor or trustee, how will the other children feel about it and what might they do to contest it? If you name all of the children as executors or trustees, will they get along?


Questions like these, and many more, are critically important to ask and very difficult to answer. The fact is, choosing an executor or trustee is a tough decision, particularly when you consider the financial stakes involved.



The rise of the professional fiduciary.


Professional fiduciaries have been around for many years, but they have not been widely used until fairly recently. Why? One of the primary reasons is that professional fiduciaries have earned, rightfully so, a reputation for undue prudence in the management of assets. To put it bluntly, in an attempt to avoid liability, professional fiduciaries have historically made extremely conservative investments and failed to obtain reasonable returns. (Of course, one could argue that a son, daughter, brother, uncle, etc. is not necessarily going to achieve stellar returns either. But hey, they’re family, right?)


The problem of professional fiduciaries being far too conservative in their approach to asset management began to change with the passage of several pertinent laws in California. One of the most important was the California Prudent Investment Act, which made professional fiduciaries liable if they did not achieve reasonable returns. Not a bad incentive for a individual or family to expect sound administration of a trust or estate. Another advantage of professional fiduciaries is that they must carry insurance, thereby providing greater protection to trust and estate assets. Combine these benefits with the numerous problems mentioned above in choosing a family member as executor or trustee, it is not so surprising that professional fiduciaries are becoming more and more popular.


So can a professional fiduciary be trusted? Well, at least their track record can be fully investigated. And even though, as any prospectus will tell you, “Past results do not guarantee future returns,” the professional fiduciary may very well be a sound choice to help ensure assets are protected, returns on investment are reasonable, wishes are carried out and legacies endure. In any case, it sure beats turning everything over to Uncle Fester. Like everything else in estate planning and asset protection, keep your eyes—and your ears—wide open.


Chris Johnson, Esquire, Co-Founder and Partner with the Law Firm of Russakow, Ryan, and Johnson, focuses on advanced estate planning, trusts and business succession. For more information visit www.rrjlaw.com.

Wednesday, June 9, 2010

Death is the ultimate tax-planning tool

June 2010, and still no estate tax. Since I (and most other tax and estate professionals) believed we'd never see a no-estate-tax year in 2010, and were proven wrong, I'm more hesitant in my predictions these days. Still, I'll say that I doubt we'll see the House and Senate agree on any estate tax legislation this year, especially in what is becoming an election year where the incumbents are running for cover.

That leaves us with an estate tax of 55% that starts on estates over just $1,000,000 in 2011. This tax will affect far more families than it has before, so I believe there will be much more pressure next year to enact a "better" estate tax. There's a lot of support in Congress and the White House for the tax to start on estates over $3,500,000, so this may be the magic number. We'll see, but will likely have to wait until at least next year to see.

In the meantime, some people are taking advantage of 2010's tax-free possibilities by dying. I doubt they mean to do so, but it's beneficial nonetheless. It looks like the largest recipients so far are the family of the Texas oil pipeline billionaire, who left $9 billion to his heirs with no estate tax. They will pay capital gains tax on that $9 billion as it's sold, but I imagine they'll still have enough left to get by.

For those worried about the high estate taxes next year, we've put some aggressive plans in place, including one that reduced $750,000 of potential estate tax to zero! There are things you can do.

Tuesday, May 25, 2010

Close, but not enough...

A lot of people ask me what the difference is between using us or an internet company to do their estate planning. My answer is that I make a lot of money fixing the mistakes made on those sites, as you really won't know the plan isn't quite right until it's too late. You can do quite a bit of research on the internet, but that research can't match the knowledge that an experienced attorney has.

My award for the "close, but not close enough" research this week goes to NBC News anchor Ann Curry, who gave the commencement address to this year's graduating class at Wheaton College in Massachusetts. She began the address by congratulating them on some of their famous alumni, including evangelist Billy Graham, horror movie king Wes Craven and 9/11 hero Todd Beamer. The problem is that they're distinguished alumni of the other Wheaton College, in Illinois. D'oh! That might explain the quizzical looks she got. She did at least get 60 Minutes host Lesley Stahl right. If Curry didn't do the research herself, I hope she fired the person who did. Apparently the Massachusetts Wheaton has some other notable alumni too, like Oscar nominee Catherine Keener and former New Jersey governor Christine Todd Whitman.

As a graduate of the Illinois Wheaton College, and as one who followed in Wes Craven's footsteps as the editor of the college's newspaper, I think our alumni beat their alumni. In fact, I support fellow alum Dave Vanderveen (of XS energy drink fame) in his efforts to promote a Wheaton vs. Wheaton Alumni Battle.

To bring it back to estate planning, though, Ann Curry thought she was prepared for the speech, and she did indeed have some background facts on famous Wheaton alumni, but she was still wrong and didn't discover it until it was too late, and the "mortified" Curry had to issue an apology. Having a good team behind you, whether in research or estate planning ensures no "oops" moments.

Tuesday, May 11, 2010

Why is a trust worth $5,000?

Our estate planning at Jan Copley and Russakow Ryan Johnson tends to cost a bit more than other firms in the area, so we're sometimes asked why it costs what it does. An illustration may help.

Think of your valuables, scattered around your house. Your jewelry is in your jewelry box, your watch on the dresser, your cash in the nightstand drawer, your stock certificates in a file somewhere in your desk, and the deeds to those rental properties you have are in that pile in the closet, you think....

Now imagine there was a document that represented your hopes and dreams for your children, your grandchildren, your favorite causes. That's lying around somewhere too.

How can you protect all of that? What do you need?

You need a safe.

And what strategy will you use in buying that safe? "I want the simplest safe I can find. I think I'll go to the toy store and buy one of those child's safes?" No, even though they may be labeled "Fort Knox."

How about, "I think I'll buy the cheapest, flimsiest safe I can find--something someone can break into easily, something that will burn nicely in a fire; something that anyone could carry out the front door!"

To protect everything you have accumulated over a lifetime of hard work? You want something strong, secure.

That's why a well-made trust is a bargain at $5,000. It protects everything you have--now and into the next generation.

One more comparison--the average price of a new car in the United States is $24,764. A very conservative estimate of the cost to insure that car would be $85 a month, or slightly over a thousand dollars a year. That's four percent of the value of the car, but you pay it every year!

Let's say you have a net worth of $1,000,000--not very large if you own a home in California. A $5,000 trust represents one-half of one percent! And that's paid once, not every year like the four percent you're paying for your car insurance. So why would you pay that kind of money to insure your car, but not to protect everything you own and value?

Probably because you have to have that car insurance, but you don't have to have a trust, right?

And that's true, you don't have to. But being a grown-up means you don't do things just because you have to. You do them because they are prudent, wise and smart.

That's what makes a trust worth $5,000.

Note: the author, Chris Johnson, also keeps a large and difficult-to-move safe for his items, in addition to his trust.

Monday, March 22, 2010

More on planning with no estate tax

It looks like we're heading toward some major health insurance law changes, which may free up some of Congress' time to deal with our estate tax problem--if they do nothing, capital gains taxes (this year) and a large estate tax (next year) will affect a lot more people than they ever have before.

While we're waiting for some action, your current trust and/or will may not deal with the situation very well, including having some unintended consequences like disinheriting people you actually like.

This letter from Jan Copley and I explains it a bit further: letter to clients posted at Jan Copley/Russakow Ryan Johnson website.

We'll be reviewing a lot of estate plans over the next few months here at RRJ, and I'd be happy to review yours as well, so please feel free to call.

Tuesday, March 16, 2010

Should I waive bond in probate?

In the often mysterious probate process, the conventional wisdom says "Don't waste your money on a bond!" New probate clients often tell me this, then ask, "What's a bond, anyway?" It's a type of inexpensive insurance, paid for out of estate funds, that pays beneficiaries when the executor steals or loses money. People assume they'll never be victims, but it happens often enough that I'm not comfortable advising people to waive the bond requirement as a matter of course. Here are a few examples from my own clients' experiences where bonds came in handy:

--the executors, a father and son team, who disappeared with $1.5 million of their siblings' inheritance.

--the conservator for several U.S. military veterans who lost or stole hundreds of thousands of dollars of her clients' funds and gave her personal assets away to avoid repayment. She was also part of the inspiration for a series of L.A. Times articles on conservatorship abuses and later legislation designed to prevent such abuses--sadly, the bill was not named after her.

--the executor who helped himself to his parents' house, borrowed the maximum against it and lost it to foreclosure. In his defense, he thought he needed it a lot more than his equally destitute brothers did.

--the administrator who let the estate's house go to a property tax sale while he was in prison. Before he went to prison, he joined some family members in a treasure hunt at Grandma's house, looking for the cash she often stashed away, leaving holes in the walls, floor, ceiling and even the yard.

Two things to take away from this: 1) bonds are usually a good thing, and 2) you meet the nicest people working in probate.

Tuesday, February 16, 2010

Can't I just file bankruptcy if I can't pay my student loans?

We know the cost of higher education is going up, and lately going up two to three times faster than inflation. I'm not sure whether that extra money is for better facilities, better food, higher professor salaries or fumigation for rooms like some of my dorm-mates in college, but the high cost means a lot of students are graduating with huge debts they didn't plan on having.

Here's the story of one recent medical school graduate with $555,000 of debt! Her story is extreme, but we can learn a few things from it:

1) Save early, if possible, for school--529 college savings plans make it even easier and more advantageous.

2) Read the fine print on the loan documents you sign, especially if you're co-signing for someone.

3) If you need a deferral of payment, try negotiating this with the lender and using their procedures, or you may double your debt like the unfortunate doctor above.

4) Find ways to spend (and borrow) less, like a less expensive school.

5) See an attorney about negotiating the debt--there are options, but they're limited, and the possibility of discharging through bankruptcy is very limited.

Thursday, February 11, 2010

How not to get divorced - tips from another attorney

Here's a post from a Dallas, Texas, family law attorney with some good advice, especially before Valentine's Day (click here). Having been through the painful divorce process myself, I'd certainly recommend doing what you can to avoid it. Michelle May O'Neil's advice may not be revolutionary, but it's worth reminding ourselves before little hurts become big ones and the people we love feel taken for granted.

Monday, February 8, 2010

What up with the estate tax in 2010?

I've been to a few lectures this year where attorneys and tax professionals, like me, are looking for the answer to what will happen with the estate tax this year and beyond. We're unsettled because none of our expectations has come to pass--we're left with no estate tax, for this year only, and instead have a step-up in basis for capital gains limited to $1.3 million per estate, and $3 million for assets passing to a spouse. And next year, we're back to a (now small) $1 million estate tax exemption.

There were many ideas about what legislation Congress would pass to avoid this result, but none have yet passed, and the longer this drags on, the less likely a solution will come until after the November election this year. Here's an article in Forbes that discusses it further.

In the meantime, the language in most trusts needs some patchwork to make it work well. I know that very few of us plan on dying this year, but just in case, have your attorney review your trust and prepare a short amendment to "2010-proof" your trust. Trusts are structured differently, so a one-size-fits-all amendment won't work, but the amendment that fits your trust shouldn't be too complicated.

Wednesday, February 3, 2010

You may not be able to just walk away...

There are a lot of homeowners, and income property owners, who are having to seriously consider "walking away" from their properties by letting them go to foreclosure or by doing a short sale. What they may not understand is that depending on their state's laws, and whether there are second and third mortgages on the property, they may still be on the hook later for a "deficiency judgment." This article on Yahoo's site explains the problem.

Many times the lenders don't bother getting such a judgment, but if they do in California, it's good for up to 20 years, and can attach as a lien against your other real estate. You may not have equity in your other properties now, but if you manage to hang on until you do, and there's a judgment, you'll be paying that off years from now at 10% interest, so it's worth investigating now to see what you can do about it. Bankruptcy and debt negotiation are among your options. I can remember a client from several years back who went through this situation in the early '90's, then discovered a deficiency judgment in 2003 when he was in escrow to sell his formerly "worthless" property and had to negotiate quickly with the bank.

So, if you're in the unfortunate position of considering foreclosure or a short sale, talk it over with an attorney first.

And, if you're in the unfortunately position of holding a note secured by property that's now underwater, talk to an attorney about preserving your rights to a deficiency judgment--it could pay off years from now.

Monday, January 25, 2010

What can we learn from watching "Roadhouse"?

I'm not sure why it took this long, but I finally saw "Roadhouse" for the first time the other day. While it may not match "Point Break", it comes awfully close, with emphasis on the word awful. What a classic! Beyond the entertainment value, I learned some valuable things that should help in the practice of law:

1) "Nobody wins a fight." Well said. You can fight to the death, but it will cost you money, time and stress, so reaching a settlement is preferable. Even so, Patrick Swayze still had to do a lot of roundhouse kickin' before he made his peace with the bad guys, and you may have to as well.

2) "It gets worse before it gets better." Even if this isn't really true, it sure feels that way. Taking your case to court and confronting the bad guys in your life will usually unleash their fury. They may not bring their kung fu grip, pipe bombs, tire irons or semiautomatic machine guns to the fight, but they can still inflict pain and it's best to expect it and be prepared.

3) "Pain don't hurt." This one I'm still trying to understand. He was the philosphy Ph.D., though, while I only took a few units, so I'll let you know when I reach enlightenment. His practice of carrying his medical records with him, though, makes a lot of sense, and I'd suggest carrying an advance health care directive and HIPAA authorization as well. In our advanced technological age, a wallet card allowing medical providers access to this information would suffice.

He doesn't mention his trust and powers of attorney in the movie, but if your profession is cleaning up dive bars and bringing justice to evil land barons, keeping your estate plan up to date is highly recommended.

Tuesday, January 12, 2010

Help! My grandma's marrying her prison boyfriend!

Here's my favorite article of the day, from Slate magazine--it's not too far from the kind of calls I get every day: "Grandma's Prison Pal."