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.

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.

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.

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.

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.

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.

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.