Parents Just Don't Understand

One of the issues that often arises in probate and trust administration is that the parents frequently underestimate the ability of their children to fight like it's a holy war. They also do not effectively understand the nature of their assets or what the implications of some of their decisions during life are. For example, I once administered an estate where the single mother died in a car accident at the age of twenty-six. She had made a beneficiary designation during her life with respect to some life insurance she had through her job. In her infinite wisdom, she had designated her co-worker - not her six year old daughter or her sister or father, the people that were going to end up stepping in and actually raising the daughter but a female co-worker. This wouldn't have been such an issue but the co-worker was not the brightest bulb and when the insurance company refused to pay, she lacked the requisite resources and capacity to pursue them and try and collect. The decedent had not understood the implications of making this designation. She had expected that the co-worker would use this money for her daughter's benefit and the co-worker seemed to understand this, as well. However, it did not work out that way, and even if the insurance company had paid, there would have been nothing to force the co-worker to do so.

An estate that I am currently administering is equally interesting. The mother believed that she had almost half of a million dollars that she could dispose of under her Will. Post-death, we learned that actually, her four hundred thousand dollar account was a payable on death account, to her three children. Suddenly, we had an insolvent estate, with not enough money to go around for all the creditors that she had, and we could no longer satisfy the specific bequest she had left for her old and now blind mother. We had an additional problem, the person she wanted to be her personal representative, her son, who had been handing all her financial affairs for her prior to her death, couldn't serve as personal representative, as he was once convicted of a felony. (For those of you playing at home, a DUI or DWI is often a felony.) One more problem for the trifecta, the three children do not communicate in any sort of way that one might characterize as healthy.

Part of the problem when you are drafting an estate plan for someone is you are limited in your knowledge. You often do not know all of the details about the client's children. If you are made aware of the potential relational issues that are sure to arise, it can still be a nightmare to plan around them, however, at least you can plan for them. You also do not know what the person did outside your office that may affect the ultimate disposition of their assets. For example, you do not know if the client has made an account payable on death to someone, like a former spouse. Oftentimes, the client is not even aware of the implications of this, or the fact that these types of designations for insurance policies, retirement accounts, and other various accounts, control.

It gets even better when the daughter, acting as personal representative, decides she needs to hold everything up because she thinks her brother absconded with over eighty thousand dollars of mom's money and you are stuck spending weeks on the phone with the bank, trying to get them to rush statements to you because she does not want the account closed until she has looked. However, you are not allowed to tell any of the other beneficiaries (who are waiting for their money) this information, as it's attorney-client privilege, and you technically represent the daughter. What the daughter fails to realize is that you still have to disclose some financial information to the other beneficiaries when they ask you, and that if you do not, they will end up getting their own attorneys and commence litigation and watch that four hundred thousand dollars evaporate in a matter of months.

It would be more funny if these types of things were not common occurrences. It is almost an estate planner's standard day to encounter heirs that just do not get along. For while the picture perfect families seem to exist on television. They do not appear to exist in our offices, and people need to plan with this in mind.

Are You My Plan Administrator?

In an effort to entertain and educate, I thought I would begin sharing some of my legal war stories* as they happen. This way you can learn from other folks' mistakes and maybe end up better off, in the end.

Most recently, I have been handling the probating of two estates. That statement is slightly inaccurate, however. For one estate (the wife's), I have only begun the process to determine whether probate will even be necessary. Despite what you may have heard, not all assets in an estate are subject to probate. However, it can often be difficult to figure which assets are and which are not. For example, the wife had an IRA and a 401(k), among her other assets. The IRA is not subject to probate, as she named her husband as a beneficiary. However, the 401(k) might be.

The 401(k) was administered by her employer. The company she worked for recently went out of business, and so I can no longer locate the plan administrator or any beneficiary designation forms. As such, I was forced to contact the U.S. Department of Labor and report the case. The agency will attempt to investigate and find my plan administrator, but they warn that it could take several months to do so, if they are able to find him at all. I also had to write a letter to the company managing the money and ask them what would be needed in the event we cannot find the beneficiary designation form. Hopefully, they will actually get back to me. The likelihood is that if a beneficiary designation form cannot be located, the proceeds from the 401(k) will be payable to the decedent's estate, and I will have to begin probate proceedings for her estate, at that point. Unfortunately, there is no way of knowing, and it is going to have the effect of delaying the full administration of both estates for several months.

This all could have been avoided if these people had kept all of their important documents together. Instead, they seemed to keep quite a bit of everything. The heirs are having trouble digging through the mounds of extraneous documents in the home and it is nearly impossible for them to discern what is important and what is just something that should have been thrown away years ago. As it is, the heirs barely found the Wills at all. If, however, these two had kept all their important documents together in one safe place, this could have all been averted. Important documents include: Wills, Trusts, Durable Powers of Attorney, Living Wills, Health-Care Surrogate Designations, insurance documents, beneficiary designation forms, current addresses and phone numbers for all of your beneficiaries. If you thought enough of them to put them in your Will, maybe you should also keep a phone number for them in a conspicuous place. Bank account information, and anything else you think would help someone reconstruct your asset and creditor picture are ideal things to put with these other documents, as well.

*Note that this will now be a category.

Look, I Wrote Something

So, for all of you out there that think I do not write enough, I share with you my very recent letter to the editor of the New York Times. I very rarely write any letters to the editor, but the article annoyed me a lot.

You ran an article called "A Need for a Will? Often, There's an Online Way" and I had a few comments about it.

The article seemed to suggest that many people can save money by having their estate planning documents prepared online. I am an estate planning and probate attorney in Florida, and I have had the chance to see the finished products of some of these online companies, and I have to say that all the documents I have seen from these online estate planning companies are terrible and miss many significant issues.

In Florida, if you die and your Will does not have a notarized affidavit attached to it, the family has to go find one of the witnesses to the Will, get them to the county in Florida where the decedent died, and pay an officer of the court to administer an oath. Finding those witnesses and getting them to the courthouse can often prove quite daunting. For example, if the Will was executed in New York, but the decedent lived in Florida at the time of their death, your heirs will likely have to fly the person down. Worse, the witnesses may not be able to be located or they may be deceased.

The forms almost never cover Florida homestead issues. If a deceased person owned their Florida residence individually and is survived by a spouse and minor children, the home will vest a life estate in the surviving spouse and a remainder interest in all of the decedent's children, irrespective of what the Will says. Many people have no idea this happens, and their heirs are caught completely unaware. Now, what happens if the surviving spouse needs to sell the home? Who can sign on behalf of the minor child? Your heirs will probably need to hire a guardianship attorney. What if some of your children do not want to let the spouse sell the home? There could be litigation.

Not having planning forms is almost as bad, however, as many people believe that their money will just go to their spouse at their death. This too is a false assumption. Under Florida intestacy law, if you die without a Will, one half of your assets pass to your spouse (irrespective of whether you are separated) and the remainder passes to your children. If any of your children happen to be under the age of eighteen when they receive an inheritance, a guardianship estate will likely need to be established and administered, producing additional attorneys' fees.

The article also neglects to mention that if an estate planning document drafted by an attorney fails to produce the desired results, and costs the decedent additional money, the attorney's malpractice carrier should cover the difference. As an illustration, your article mentions a man who lost 80% of his estate to the IRS because he improperly drafted his own document. If that document had been drafted by an attorney and it had not produced the outcome intended, it is quite likely that the attorney would have been responsible for the additional taxes and the heirs would have received all of their money.

No one wants to spend money. However, in this case, you get what you pay for. Unfortunately, it will not be you that has to live with the consequences of going the cheaper route but your heirs, the people for whom you originally attempted to protect. Additionally, if one shops around, one can often find reasonably priced attorneys who can prepare simple documents for somewhere in the neighborhood of $500. Yes, it costs more, but it may save you and your family substantially more in the end, and give everyone added piece of mind.

Forgotten Details

With the passing of my friend, I was reminded of a couple things that few people plan for prior to their passing, but which often come up after they have shuffled on to the great beyond.

If you have online accounts, especially with automatic debits scheduled, make sure someone else has the ability to access them after you are gone - and not just your significant other because, often, they may go when you do. I went through this weekend with Roboform and had it store the login information for all of my accounts and then put my master password with my Will. I know this may seem trivial, but it can take quite a while for your family to pull all of your records together, find an attorney, get all the documents signed, get to Court, obtain Death Certificates and get the necessary documents to the correct departments of all the companies. In all that time, you may have automatically debited your account for thousands of dollars, which can be significant - especially if any of the debt (like most student loans) are discharged at death or if you have an otherwise insolvent Estate. More than anything, figuring out all of these details can be a real headache for your family and loved ones. Plus, Roboform is free.

I know I have not updated here in about two weeks. Sorry about that. I had a funeral to attend the weekend before last and last weekend, I was in a wedding and both events were out of town. Overall, I think I preferred the funeral to the wedding, which probably sounds a little morbid. However, it was just easier and more fun for me, I think. I saw more people that I knew and liked at the funeral and had fewer headaches and nicer people to deal with. Fortunately, the bride and groom were not aware of most of the major debacles that occurred in the days leading up to the wedding, and they were in their own state of bliss. However, for those of us just along for the ride, it was a painful experience that I hope not to have to repeat for at least a year or two.

The funeral was good, I guess. It gave me a chance to see some friends I have not seen in years and we were able to sit and laugh and exchange stories about our friend who is no longer with us. I do not think it was the magical experience that I have often heard funerals described as. I did not leave the event thinking, "Alright, now it all makes sense; I'm ready to move on." Instead, I think I departed feeling just about as confused as ever about my loss as I had before. However, I definitely felt it was a worthwhile experience to attend and his family really appreciated how many people had shown up to honor their son.

I guess that nutshells the past couple weeks of my life. I will try and do better at posting more frequently on more items of note and interest.

Disappointment

I'm a little disappointed in people. I'm a little disappointed in how easily people are misled and deceived. I'm a little disappointed at the utter lack of questioning on the part of people. Finally, I am disappointed at authors on all sides of the political spectrum who distort facts and numbers. I believe that if fewer people did this it would be easier to understand the situations that face us and would lead to less confusion, not to mention make the statistics easier to believe.

I learned this week, through a book published by two Yale academics that there is a very real possibility of the estate tax being repealed. I wasn't incredibly shocked by this. I think it's stupid, but I wasn't shocked. What I was shocked by was the fact that the majority of people leading the charge for this repeal were not the people burdened by this tax (their work was behind the scenes - paying for well placed ads and the like) but middle class Americans - people that will have to see an increase in their taxes to make up for this loss of government revenue. In effect they are pleading for the government to tax them more and spare the rich.

Let me explain for those of you that have no idea what I am talking about.

The estate tax (or "death tax") is imposed on rich people when they die. I think it's been in place since about 1916. Many rich people (including Rockefeller and Carnegie) at the time of its enactment supported this law's passage because they felt that inherited wealth stunted working drive of subsequent generations. They also didn't believe in a generational aristocracy being created in a country that was supposed to provide equal opportunity for all. Then in 2001, an estate tax repeal was adopted which would slowly phase out this tax, with a complete repeal in 2010. The way the law was passed, in 2011, the estate tax comes back unless Congress acts prior to then. Recent;y, the House passed a bill to permanently repeal the estate tax. This was nothing new. They've done it before. What is new is that the Senate may actually go along with it as most Americans are pushing for it.

The basic law, as of 2002 was that the first $1 million (now $1.5 million) a person owned at death was exempt from estate tax. Anything above this amount was subjected to the tax. Assuming people conducted a minimal amount of estate planning, a married couple could pass $2 million tax free at their death to others. (One significant benefit to this tax being in place is that it allows for a full step-up in basis as of the decedent's death - meaning that a person inherits property with a basis equal to its fair market value as of the decedent's date of death. With an estate tax repeal, this will no longer be the case and will subject people to extra capital gains taxes. Basis - in a simplistic analysis - is the amount you are deemed to have paid for something. So if you buy a car for $100, you have a $100 basis in that car. Hopefully, you followed all of that.)

The amazing thing to me is that most Americans believe the estate tax affects them - that they will have estate tax exposure at the time of their death. This is entirely false. In 1999, when the exemption was just $650,000 (not even $1 million), only 2.3% of all estates were subjected to the estate tax. Generally, that meant only estates worth more than $2.5 million were subjected to the estate tax. More than half of the revenue collected that year came from the people with over $5 million estates (or the richest 0.1% of our society). The amount raised was enough to fund almost one-half of our entire Education or Department of Homeland Security budget.

What does this all mean? It means the American public, as usual, has been hoodwinked into believing that supporting this tax repeal will benefit them. This is just like when they were coaxed into believing that George W. Bush's last tax relief package would benefit them. The way the numbers broke down - and this is according the U.S. Government, which does a study on how every tax measure will affect the population - the people that really benefited were the top 5% of the American population (and in fact really only the top 1% got the big benefit).

The problem is that this type of tax break does not stimulate a consumer lead economy. The people getting the tax breaks are not going out to buy Big Macs and beer. They are keeping it. Saving it. Investing it and the like, and somehow it has reentered the general public's mind that this benefit will trickle down to them. Trickle down economics was tried throughout the entire Reagan administration and it didn't work. It was concluded that this theory really only works on paper.

The other problem is that the average American, about 75% of them, supports a tax repeal that will not benefit them, but will instead force a tax increase on the average middle class American. And I have to suffer for their ignorance.

Planning

This Terri Schiavo case really has been a wake-up call to a lot of people. Suddenly, estate planner's offices are busy with random people seeking to obtain a living will - and hopefully, after being fully informed, a designation of healthcare surrogate. It is terribly unfortunate that Mrs. Schiavo did not have one when all of this occurred. I suppose one never thinks that they will need one ... until they do.

I was really surprised at how motivated Congress suddenly became to save this woman's life - after she has been on life support for ... 15 years. Lots of people die every day and our country has a ton of issues that require their attenion - icluding a war, a budget, tax reform, universal health care, the environment, welfare, minimum wage, inflation, the deficit, health and safety. What gets them off of their vacation though? A woman in a persistent vegitative state. It was rather un-Republican like as well - to become so involved in a family's private affairs, and interfere with State court rulings. And the President returned from a vacation in Crawford, Texas to sign the legislation as well. I do not think he even cut his vacation short for the tsunami.

I know there are a lot of people out there that think that they know the right thing to do in this situation, but I really think that they cannot. It is a personal decision as to whether or not you want to be kept on some sort of life support. It is something only she could really answer, and as she is incapacitated, only those closest to her could decide what she would have wanted. A bunch of Monday morning quarterbacks watching a few minutes of tape cannot conclude what the woman in the picture would want or how she viewed this topic. I really do not see how Congress, where most of the members have only watched a couple of tapes of the woman, can interfere with courts that have actually heard all the testimony and evidence regarding what this woman wanted. Seems ridiculous.

Planning could have saved the family from all this pain and all this mess.