New Year, New (or Updated!) Estate Plan

2019 is here and it’s the year to finally tackle creating your estate plan so your family, loved ones, and legacy are protected after you pass. Is this something you have been putting off? Are you wondering why you need an estate plan? Are you sure your existing plan includes all of life’s changes? Here are some of the reasons why it is so important to get started now.

Estate Plans Are For Everyone

Estate plans are not just for wealthy people. Your estate plan includes everything you own from bigger assets like a home or bank accounts, or life insurance, all the way down to smaller assets like jewelry or a car. Have you ever heard of children fighting over who gets what when a parent passes on? An estate plan would prevent that. If any of your assets have changed since you created your trust, they are at risk for creating problems.

Protects Your Loved Ones from Lawsuits and Divorce

Older trusts provide for outright distributions at death, but a good trust will take into account the highly specific dangers faced by your circumstances—both during your life, and when you’ve passed that asset on to your heirs. This way you are protected from creditors, predators, and major relationship shifts like divorce.

Helps You While You Are Alive and Protects You In the Event You Are Incapacitated

If you are incapacitated with an illness – even if you are just under sedation for an hour-long operation – who do you trust to have your best interests at heart and make the right calls? Having a power of attorney, a long-term healthcare plan, and medical directives help eliminate uncertainty and enables your loved ones to provide you with  help in your time of need. A living trust is a living document which has binding legal effects from the moment it is signed. It lives with you and helps you and your family throughout your lifetime. Then, it continues to protect your estate and your loved ones after you die. The alternative is going through a conservatorship in which a judge in court makes decisions for you.

Without One, Your Assets May Go Into Probate

If you don’t have a trust, a probate court gets involved to distribute your assets for you. Just to get to the milestone of standing in front of a probate judge to hear the ruling will take weeks, months, or sometimes years. And the bitterness resulting from a battle among your heirs may last the rest of their lives. In the end, the legal costs may well consume their entire inheritance—it happens often. And since it’s a public process, your assets and estate transactions become public record, something most people would prefer to avoid.

If You Are the Parent of A Minor, You Need to Appoint Guardians

How do guardians get put into place? If you die suddenly, and your children under eighteen have no surviving parent (divorced or otherwise), social services may claim responsibility for them. The relevant agency will then start sorting through the rest of your family. Every parent with a child under the age of eighteen should create proper documents nominating guardians for minor children.

It Helps You Align, Verify, and Track Your Assets So They Are In Keeping With Your Wishes

All of your appropriate assets should be noted and placed inside your trust. This is a laborious process involving communication with many institutions, but it is a critical component of ensuring you are properly taking care of your family. You wouldn’t want an ex-spouse getting your retirement assets because you didn’t get around to changing your beneficiary designation forms.

It Can (and Should) Be Changed Or Updated 

Life changes and so will your estate plan. It’s a good idea to review your estate plan at least every five years to make sure your loved ones are protected. This is particularly important if you’ve experienced any life-changing events, such as marriage, an addition to your family, or a divorce, that would affect your distribution of assets.

It Takes Care of Your Loved Ones When It Matters Most

Having an estate plan ensures that your loved ones will be cared for no matter what happens.

We know creating an estate plan can be daunting and obviously there are many more details that factor in. That is why you need someone experienced and knowledgeable on your side, one who is focused on helping you do what is best for your family. To learn more, sign up for one of our FREE seminars.

 

Estate Planning – Don’t Forget About Your Digital Assets

When we think of our estates passing on after we die, our houses, cars, money, and children may spring to mind. Most people don’t think about their cloud storage, social media accounts, internet domains, or online investments. Your digital assets need to be as much a part of your estate planning as your other assets. We are here to help you plan ahead so your digital presence is taken care of.

Not All Attorneys Are Created Equal

Find a knowledgeable and experienced attorney who is familiar with your state’s laws and regulations. Technology is evolving at such an incredible rate that the law must keep with up with it and can be confusing when it comes to digital assets and their distribution. California is just one state to pass a digital assets bill that provides guidelines as to how digital assets can be accessed after death.

Get To Know Your Social Platforms and Their Terms of Use

Facebook offers a legacy contact option to memorialize your account but even this comes with stipulations. Make sure you are familiar with all your provider terms of service whether that be cloud storage, your phone, or social media platforms that you use.

It’s Not Enough Just to Have Passwords 

Remember that just because someone can access your passwords doesn’t mean they are automatically entitled to your photos, storage, valuable internet domain, or investments. In fact, “statutes like the Computer Fraud and Abuse Act (“CFAA”) and The Stored Communications Act governs unauthorized access to computers and electronic devices and limits providers’ ability to share account information with others.” Look into password protection programs or even the technology of blockchain can be an alternative solution for secure access.

Not Looking out for Assets Leaves You Open to Fraud

Leaving your digital accounts out of your estate plan not only deprives your heirs of invaluable photos, videos, and more, but If these accounts are left behind or ignored, it leaves you open to potential fraud as your accounts are hacked or, your identity is stolen.

Not just for photos or social media presence, planning for digital assets also includes things like email which is tied for many to your utility bills, banking, credit scores, or loans.

To learn more about digital assets and other topics related to your estate plan, contact us or attend a FREE seminar in your area.

PROBATE IS DANGEROUSLY PUBLIC

Like Bob Jr. from our earlier post, most people are shocked to learn that probate offers the family no privacy whatsoever. Literally, anyone can go to any court in America, walk up to the probate filing window, and say, “I’d like to see such and such file number.” The clerk will turn over a file that will include the probate petition and lots of other documents containing the names and addresses of executors, beneficiaries, and anyone else involved, adults and minors alike. The date of the inheritance and the amount of the inheritance is a matter of public record, along with the specific value of all assets in the estate and all of its debts.

Right there, for anyone to see.

Any scam artist who wants to troll court records and take advantage of people who have just inherited money could do no better than start at the probate filing window. Creditors of a beneficiary may subscribe to a data service and say, “Hey, I’m owed $100,000 by Bob Jr. Tell me whenever his name pops up in court records. This same creditor may show up at the probate hearing and say, “Don’t give the money to this heir, give it to me.” I have seen it happen.

Conservatorship processes for adults offer limited privacy. If you get Alzheimer’s disease, and have not made proper prior arrangements, your conservatorship hearing will become a matter of public record. The medical portion of your file can remain “sealed,” but family ties and the amounts of money spent become a matter of public record. This means that all of your personal details, from the names of your relatives to a second degree of kinship to your financial records, will be available to anyone who inquires about them. If $118.36 was spent for adult diapers at Walgreens three years ago, anyone can find out.

ENTER THE LIVING TRUST

I have left out a lot of details about the actual processes of probate courts. Why? Because solid advice for navigating probate requires a whole other book, and an attorney.

This book has a different job. This book exists to keep heirs out of probate court altogether. Consider that statement your mission, whether you are planning your own succession or helping your parents plan theirs. Regardless of your financial situation, your goal should be to make your wishes so clear that no judge has to clarify them. Then, structure your estate so it can be passed on without a hearing.

How can you avoid the terrible hassle of probates and guardian processes? The arguments? The uncertainty? The delays?

Do a good estate plan with its foundation in a living trust. For more information on how to begin, contact a licensed attorney on our team today.

CalAble Accounts: What You Need to Know

In December 2018, CalAble Savings Plans opened to the public. Individuals who became disabled below the age of twenty-six are now able to invest in a tax-free account, without losing their SSI or MediCal.

A CalAble account is a savings and investment account. They can be opened by a disabled or blind individual, or on behalf of the disabled or blind individual, as long the third party is guardian, conservator, or power-of-attorney agent to the disabled person. In all cases, the blindness or disability must have occurred before age twenty-six.

CalAble accounts do not count for a person’s eligibility for federal or California benefits unless the account balance exceeds $100,000. Once an account exceeds $100,000, SSI may be suspended. However, a CalAble account balance will never affect eligibility for MediCal.

All appreciation within a CalAble account is tax free. Distributions from CalAble accounts are tax free as long as they are used for Qualified Disability Expenses. A Qualified Disability Expense is an expense that relates to a disability and helps the account owner improve their health, independence or quality of life. If CalAble funds are used for Non-Qualified Expenses, the account owner may have to pay income taxes, plus a 10% federal tax and a 2.5% California state tax. These non-qualified funds you withdraw may be counted against you for determining eligibility for public benefits.

The maximum Annual Contribution Limit is $15,000 (The limit is tied to the annual federal gift tax limit). Employed account owners can contribute up to an additional $12,140 to their respective account.
Anyone can contribute money to a CalAble account, including a trust.

How do CalAble accounts relate to Special Needs Trust?

In general, CalAble accounts and Special Needs Trusts complement one another. CalAble accounts allow account owners direct access to their own savings funds but are limited to the $100,000 amount.

Do you own a home, IRA, or accounts larger than $100,000? If so, these assets should be left to a Special Needs Trust, as opposed to a beneficiary outright with a CalAble Account. Unlike human beneficiaries, Special Needs Trusts can hold virtually unlimited assets, yet the human beneficiary will never risk losing their public assistance.

The growth within a Special Needs Trust, unlike the CalAble account, is subject to taxation. As noted earlier, growth within a CalAble account is tax free. Funds from the Special Needs Trust can be withdrawn and placed in a CalAble account in order to receive this tax-free treatment.

What does this mean for my loved ones?

CalAble accounts will enable millions of people to reach new levels of financial security. Coupled with a comprehensive estate plan, disabled people and special needs beneficiaries can now live a life where they are less focused on their finances and can pursue their passions. Disabled loved-ones no longer must sacrifice basic needs just to ensure government benefits.

If you would like an estate plan tailored to your special needs beneficiary’s needs, please contact Cunningham Legal and schedule a one-on-one meeting with one of our licensed attorneys.

MINOR CHILDREN PRESENT A SPECIAL PROBLEM – The Question of Guardianship

We continue our discussion of probate court today on the topic of probate court and minor children. The costs of probate will go up considerably if the succession involves orphaned minor children. But in that case, of course, more than money is at stake.

When children are under eighteen, and no parent survives, the state or other “interested person” will seek a guardianship for the child’s “person” and a guardian for the child’s money, or “estate.” Sometimes, these will be the same person, and sometimes they will not. In the Introduction of this book, we discussed a common situation in which these two roles should be separated. Let’s look at these issues more deeply.

In most states, if someone under the age of eighteen inherits any money of significance, the question of guardianship for this money will arise in court. If the child does not have a living parent, and a parent has not nominated anyone, the court will start looking for suitable guardians for both the person and the estate. If the child inherits a couple of hundred thousand dollars, the cost of creating these guardianships alone will cost $10,000 to $15,000. It’s not uncommon for the full cost of a probate process that includes a guardianship court proceeding for minor orphans to run $100,000 in legal fees.

Why so much? For starters, the court generally appoints an investigator to look into the backgrounds of nominated guardians. There’s typically an additional attorney appointed to represent the minor child. The costs of hiring these people is not paid for by the state if the estate has the ability to pay.

But minor children present an even greater risk to your financial legacy. The moment the child turns seventeen and 366 days, he or she can take complete control of their money and blow it, which they usually do. Do you remember being eighteen? Boys generally buy cars. Girls buy clothes or cars for their boyfriends. In any case, they have been thinking about this money for a long time—and now they’ve got it.

Guardianship creates a heavy responsibility whether it’s guardianship of the person, of the finances, or of both. The guardian will have to file an accounting with the court every two years, or as the court may otherwise order, and give a final accounting when the child turns eighteen. If you don’t find a suitable guardian to agree to take on this role before something happens to you, the court may not be able to find a good, willing guardian at all. And your children will end up in foster homes with strangers as their guardians.

Guardians sometimes drop out before the child comes of age, or they do something irresponsible, which makes it vital to move them out of the role. In that case, the court will appoint a new guardian.

Many other situations will trigger a guardianship or a conservatorship (i.e., guardianship for an adult) proceeding.

These include mentally incompetent, adult dependents and mentally incompetent, surviving spouses. Again, if you don’t plan for these possibilities in advance, a court appointed social worker will.

How do guardians get put into place? If you die suddenly, and your children under eighteen have no surviving parent (divorced or otherwise), social services may claim responsibility for them. The relevant agency will then start interacting with family members. “Did they find a will? Did the parent make some other nomination for a guardian? Did the deceased parent write anything down that says, ‘I want this person to care for my minor child?’”

If no one petitions to become the guardian, social services will petition the court to name a guardian. If social services identify a nominated guardian, and the nominee agrees, then he or she must go on to file a petition with the court to become the guardian. No petition, no guardian. The process is not automatic.

The guardianship process and hearing are very much like the probate process I described for Bob Jr. A potential guardian has to file a stack of papers and appear in court. But in this case, he or she will also have to go through a pretty serious background check, including perhaps fingerprints, etc. As mentioned, this investigative process will indeed cost money, paid by the estate.

No nominee designated by the deceased parents? Social services will start sorting through the rest of your family. Any grandparents out there? What if four grandparents are alive, and both sets want to be the guardians? Now that can be a nasty fight.

Such situations cannot always be avoided. But their cost, their burden on the family, and the chance of a bad outcome can all be greatly reduced by proper estate planning. And all parents should do it.

I believe it is every parent’s responsibility to create proper documents nominating guardians for minor children— every parent with any child under eighteen. In fact, just as important, I believe parents should create a living trust and designate a trustee to watch over their children’s financial estate until they are well older than eighteen—perhaps until they complete an undergraduate education or later.

For more information on creating your living trust and guardianship for minors, contact one of our licensed attorneys today!

In Most States, “Title Controls” – Probate Court Continued

Without a complete estate plan, even surviving spouses often have to go through long or short versions of probate to get full control of their family’s assets. In the meantime, terrible hardships can ensue.

Wait! If your spouse dies—don’t you automatically get control of his or her assets, even if no will was signed?

The answer is maybe yes, and maybe no.

In most states, “title controls.” This means that if your name is jointly included on the title of the asset, whether a house or a bank account, and the title was structured for joint tenancy with rights of survivorship, the surviving joint tenant will get the account or property. In other words, you, as the survivor, will indeed be given instant control of that asset.

Or not. It depends. Even if all your assets are held as joint tenancy with right of survivorship, what happens when the last man (or woman) dies?

Sometimes joint tenancy and joint ownership have their own pitfalls. Suppose, for example, your spouse has a business bank account that he shares with a business partner. Your spouse dies, it might be the partner—not you—who gets control of that account. You may be on the sidelines yelling, “Hey, that was marital property, I’m entitled to my half of that account.” But absent a clear estate plan, you may have to file a probate petition and start a battle that may or may not let you gain control of the disputed assets. The matter will quickly become complicated, and it’s likely that lawyers will get involved.

A class of assets which generally avoid probate are: Transfer on Death (TOD), or Payable on Death (POD) accounts. You will generally see TOD on securities and POD on bank accounts.

If some of Bob Sr.’s money resided in a POD bank account, and he named Bob Jr. as the POD beneficiary to the account, then indeed, Bob Jr. would merely have to show up at that bank with a photo ID and a death certificate in order to gain control of the account. Such accounts do not need to go through probate. In fact, they are not even covered by a will.

This may simplify things, or it may create unintended problems for multiple heirs.

If you are going through life creating some assets that are

POD to multiple names, some that are jointly held, some that are inside a living trust (see below), and others that you simply fail to track properly, then you are creating more and more issues for the next generation.

Those issues will have a name: probate.

SOMETIMES, PROBATE IS A NIGHTMARE

Bob Jr. from our previous post had it easy.

I have plenty of clients for whom the failure to do proper estate planning has led to a true nightmare. Take a couple I will call Katerina and Ivan, immigrants from the Ukraine who have lived much of their adult lives in California. They’ve become citizens of the United States, and have four kids.

At age forty-eight, Ivan died of a heart attack while driving a truck at work. Katerina’s English was poor, so when she came to see me, she brought along a translator, just in case.

Now, it was a mistake, but hardly unusual, for Katerina’s forty-eight-year-old husband to have made no will. If Ivan thought about it at all, he probably assumed that under the marital property or “community property” laws of California, his wife would get everything if he died.

Ivan was wrong, for he had made another important succession error.

Shortly before he died, Katerina had run up about $25,000 on her credit card, and the couple worried that they would lose their home to the credit card company. At that point, Ivan said to Katerina, “I’ll tell you what. Let’s just put the house in my name alone, and that will take care of everything. The credit card company can’t take the house if it belongs only to me.” This alone was very flawed thinking on the part of Ivan. If asset protection were that easy, no legal industry would have grown up around asset protection. To Katerina, however, it seemed like a good idea. She went along with the plan and transferred her ownership of the house to Ivan “as his sole and separate property.”

Even worse, Ivan did not take the next crucial step. He did not write a will in which he left everything including the house to his wife. How many people worry about such things at forty-eight? Because the house was in his name “as his sole and separate property,” when he died, it was not considered “marital property” anymore, and guess what? Their children had an immediate legal right to part of the house. Of the four kids, three were adults, and one was still a minor. The complexities swiftly multiplied.

Katerina sat in my office, crying. “Not only have I lost my husband,” she despaired, “but now I have this issue with my own house.” She was not going to be able to sell the house without going through probate. She wasn’t even going to be able to refinance it without going through probate. And she was certainly going to have to give up some ownership to the children.

Here, we have a clear case of how what you don’t know you don’t know can hurt you, and hurt you badly. Katerina’s struggle could have been avoided if she and Ivan had consulted an estate planning attorney and put their affairs in order. With the right will and the right living trust, no probate hearing would have been required, and Katerina would have taken full control of the house.

Would that have cost a little money? Yes. Would it have been worth it? Oh, yes.

PROBATE GETS EXPENSIVE FAST

Probate is not just a hassle and a potential nightmare, but it can be very expensive. Why? Never mind the court fees, which are annoying, but manageable for most. Probate gets expensive because the cases are rarely as simple as Bob Jr.’s, with a clear will and a single heir.

In most of the probate cases I see, heirs are not working their way through the court process on their own. They may have started out doing it themselves, but they quickly become frustrated, annoyed, and unhappy. So, they hire an attorney to finish the process for them. Typically, the executor of the will also takes a fee to complete his or her responsibilities. All this adds up quickly.

In California and New York, a million-dollar estate typically pays almost $50,000 in probate fees and expenses. Often, these fees are based on the gross value of the assets of the estate without regard to debts. Think about that. If the debts to the estate are high, it’s easy to see how the whole process could end up underwater.

Would you like more information on estate planning and how to avoid probate court? Attend one of our FREE seminars or contact one of our licensed attorneys today!

 

Letting Your Family Go to Probate

When your kids were little, you wouldn’t let them run in the street.

When they were teens, you wouldn’t let them stay out until dawn.

When they became adults, you wouldn’t let them send money to Nigerian princes soliciting them by e-mail.

And when you die, believe me, you should not let them go to probate court, not if there’s anything you can do to prevent it.

But unless you do the right kind of estate planning—which goes well beyond signing a will—you create an extremely high probability that your heirs will go to probate court. In probate, they will have to stand up and prove to a judge that they have a right to your property. If you don’t divide up those rights clearly in advance, if the names on the title documents are confused or out of date, or if your children encounter a dozen other possible complications, they may well have to lawyer-up and fight over your estate.

Just to get to the point of standing in front of a probate judge, it will take weeks, months, or sometimes years. And the bitterness resulting from a battle among your heirs may last the rest of their lives. In the end, the legal costs may well consume their entire inheritance—it happens often.

Am I exaggerating? Unfortunately, I am not. I have dealt with many estate successions, and stood in probate court many times. I know the deal.

What is probate? It comes from the Latin word probare, which means “to try, test, examine, prove.” In modern English, we might translate it this way: “unbelievable and unpredictable hassle.”

PROBATE IS ALWAYS A HASSLE

Let’s take a “simple” case. Bob Sr. dies. He is survived by Bob Jr. and his estranged daughter, Jane. Bob Jr., is lucky enough to locate a signed, properly witnessed, last will and testament that leaves everything to him. A few weeks after the funeral, for which he has paid, Bob Jr. realizes it’s time to deal with his inheritance. For starters, the funeral has set him back $6,000, and he could use the money.

At some point during those two weeks, it dawns on Bob Jr. that if he takes no action, he will get nothing. His name does not appear on any of his father’s accounts or title documents. After a little research, he discovers that no “inheritance agents” are going to track him down to hand him his father’s money, or the deed to his house, or the keys to his safe deposit box.

Now, Bob Jr. needs to get to work.

First, he goes through his father’s desk and finds $800 in cash. He puts this in his pocket. So far, so good, he figures. But, in fact, he has just broken the law, because regardless of the will, the cash is not his, and neither he nor his siblings’ rights to that cash have been established by a judge.

He also finds a bunch of bank statements. He’s not sure if they cover all his dad’s bank accounts, but he pulls one from Friendly State Bank, and decides to go meet with them.

Bright and early one Monday morning, Bob Jr. puts on a tie and drives down to the local branch. The Friendly State Bank manager sits him down in his office, where Bob Jr. pulls out Bob Sr.’s death certificate, along with the signed will, and asks to be given access to his father’s account.

“Sorry, sir,” says the manager. “We will need letters testamentary from the probate court. We also need a probate court order, which proves that this is the last will your father left behind and that you are the official executor. I’m afraid your father never transferred his accounts here into a living trust.”

“Excuse me?” asks Bob Jr.

The bank manager smiles. He sees the look in Bob Jr.’s eyes at least once a week. Hardly anyone knows about such things until they have to know about them—and often, that look of bewilderment is the first hint that these people’s lives are about to take a whole new turn. The manager is also smiling, because he knows that Bob Sr.’s money isn’t going anywhere soon.

“I’m talking about documents signed by a judge and a clerk of the probate court. You have to petition the court to get them. And make sure they have the official stamp—the purple stamp by the way, not the black one.”

“I bet someone is going to ask for those kinds of documents when I try to take title to the house, too.”

“Yep.”

Now, if Bob Jr. has plenty of time and patience, and makes an effort to learn the ins and outs of probate proceedings, he may eventually figure out how to get his letters testamentary. But, he is about to enter into a very frustrating and archaic process.

He will encounter a series of weird laws and will wait in a lot of long lines.

He will get a pat down from security if he leaves his pocket knife in his pocket as he walks through the airport-style metal detector at the courthouse.

He will discover that the world of the court is nothing like the efficient world of business. For example, he will discover that he will have to complete the probate process in a certain sequence. If he does them in the wrong sequence, the process can come to a screeching halt.

At this point, Bob Jr. might pick up the phone and call a probate attorney to handle the rest of the process. He probably should. For one thing, an attorney might know about exceptions to probate in his state, especially if the assets have a low value. Some states might also offer an abbreviated proceeding. The time an attorney could save Bob Jr. would likely cover his legal fees.

Most likely, however, Bob Jr. won’t call an attorney yet, because he still doesn’t know what he’s getting into. He’s a babe in the woods.

Bob Jr. does a little research and finds out that he has to go down to the probate clerk’s office to kick off the process. There, a clerk hands him about eight forms and says, “You need to petition the court. You will be the petitioner. It’s very simple. Here’s a four-page form, a three-page form, and some two-page and one-page forms. Please fill everything out correctly and in the proper manner. Pay attention to the sequence of each step. Bring them back when you have everything done, and we’ll give you a hearing date.” Lawyers have a charming word for this process. We call it a “form pleading.”

Bob Jr. learns to his surprise that thanks to probate, he has to publish a notice in a local newspaper telling the world that his dad has passed away. But he’s more concerned to learn that he has to notify all of his father’s descendants, all of the people named in the will, and anyone who would inherit in the absence of a will.

All this must be completed before he can get the papers he needs to take control of his dad’s assets.

Now, a chill runs down Bob Jr.’s spine as he suddenly recalls that after his father and mother divorced when the kids were young, Bob Sr. had married a woman in Nevada on a whim. They broke up shortly thereafter. Bob Jr. has no idea even of the woman’s name, or if she is alive. After all, his father died at eighty-five, and all that happened long ago. Bob Jr. doesn’t know if his dad ever divorced this Nevada woman or not. But now, Bob Jr. has to find out whether they were still married, and whether she is still alive, and notify her.

Then there’s Bob Jr.’s own sister, Jane. She and Bob Sr. argued bitterly and haven’t spoken in roughly twenty-five years. She was largely left out of the will, save for a box of her old college paraphernalia, and Bob Jr. hasn’t had any contact with her for at least a decade. Last he heard, she had moved to Bahrain (or was it Kuwait?) to teach English. Now, he has to notify her, but he doesn’t have her address or any way to find it.

Then, Bob Jr. is stunned to discover that in the course of probate, all the details of his father’s assets will become part of the public record, including full information about his father’s possible heirs, including the estranged Nevada wife. This might open up the estate to scam artists, which rightly scares him.

Bob Jr. was named as sole beneficiary in the will. But he will have to stand in line with everyone else for a chance to make his claim before a judge.

It’s lucky that Bob Sr. was fully retired and had no partnership interest in a business. Imagine how complicated that would be to unwind. Or, imagine if Bob Sr. had left no

will at all, which is true for about 55 percent of Americans. That’s right: 55 percent of Americans die “intestate,” guaranteeing no end of hassles for their heirs. The numbers are highest among minorities.

As it happens, it takes Bob Jr. only a month to find and send out notices to all the possible heirs, publish the information in a newspaper, fill out all the forms, and get the forms back to the probate court. Like the funeral, this costs a bit of money and time—neither of which he can really afford.

Meanwhile, more bank and investment statements have arrived in his dad’s mail. Small accounts, but assets Bob Jr. didn’t know about. One’s an IRA, which he foolishly considers to be just other asset he can cash out. (For much more on this issue, see Mistake #5: Assuming Your Living Trust Covers Things Like IRAs, 401(k), 403(b)s, 457s, Annuities, and Insurance.)

Then there’s the mysterious wife from his dad’s past. It turns out that his dad never divorced the woman and she’s not dead, which causes Bob Jr. more than a little worry. He sent his sister a notice to her last known address and got no reply. Will these issues somehow mess things up?

When Bob Jr. takes his petition to the court to get a hearing date, he hands all his papers to a clerk, along with a check for the court fees (there are always court fees). The clerk checks to see that all the forms are minimally filled out, and hands Bob Jr.’s petition back with a stamp and a hearing date.

The date is just six weeks away, but Bob Jr. has a problem.

“This date doesn’t work for me,” he says. “I’m going to be out of town.”

“I’m sorry, but that is your date. You should have told me before.”

Because Bob Jr. has never done this before, he didn’t know that before he handed over the petition, he needed to tell the clerk his schedule limitations. If he had negotiated beforehand, he might have gotten a better date. But now he is stuck. Is every courtroom like that? No. But is this typical of the overall probate process he is about to experience in real time? Yes.

Of course, on Bob Jr.’s hearing date, the judge may be sick or called away to a more important matter. Or, the court transcriber might be sick, and the whole thing will be delayed. A lot can go wrong before you get your time in front of a judge, even if your case is straightforward. Even if your parents made a proper will, there’s no argument among siblings, and you have done everything just right.

(If not, well, see Mistake #7: “Letting Your Beneficiaries Muddle Through on Their Own.”)

On the date of the hearing, Bob Jr. leaves for the courthouse with plenty of time to spare. Someone told him to show up an hour-and-a-half early, because if he is not there at the moment his case is called, he will lose his date and will have to start again. But, when he gets to the courthouse, the lot has filled up, and he has to park a couple of blocks away. Then he has to stand in a very long line at security—a process that operates similarly to an airport’s, only not as efficiently. Then, he gets lost in the huge building. By the time he enters the courtroom, Bob Jr. has only ten minutes to spare before his 9:15 a.m. call time.

Judges are free to lock the doors on people who have a 9:15 a.m. appearance and show up at 9:16 a.m.

A probate court will typically post online or in a paper near the courtroom door, a list of “matters” for the day, along with what are called “probate notes” and “tentative rulings.” “Probate notes” are written by court staff to let the judge know what’s going on in the case and what may be missing from the file. “Tentative rulings” indicate the way the judge intends to rule. It makes a complex process incrementally more efficient. You can see if your matter has been recommended for approval on the first hearing or not.

If your matter is recommended for approval, you will likely get a court order for your letters testamentary and other documents to be prepared (though of course, not right away). If your matter is recommended to be continued, it’s usually because you still need to do a number of things that, in the opinion of the judge, you have so far failed to accomplish.

Bob Jr. gets depressed when he sees that his case has been recommended for continuance. But he still needs to get through this hearing.

Inside the courtroom, our hero blinks at the size of the operation. The room is large, and several dozen people are sitting and waiting for their cases to be called. At the moment, however, nothing seems to be happening, and he learns from someone that the judge was late getting in that morning, and still hasn’t appeared on the bench. The judge was supposed to start proceedings at 8:30 a.m. but, well, he’s a judge, and he does what he wants.

When the judge appears at 9:30 a.m., the court starts calling cases, or “matters” at a perplexing speed. In Los Angeles County, with its millions of residents, I’ve seen one-hundred matters called in sixty minutes. You do the math. But in a rural county, where the courts have less on their plates, they might call only six matters in a whole day. There’s just no way to know.

Bob Jr. watches petitioner after petitioner stand before the bench. The probate judge glances at the papers, looks at the staff recommendation, asks a question or two, and then either approves and signs an order, denies it, or continues the matter. He often makes these decisions in seconds.

At last, around 11:45 a.m., just when Bob Jr. begins to despair that the court will close before his matter is called, he hears his name. He rushes forward.

The judge glances at the stack of papers, eyeballs Bob Jr., and asks, “Where’s your sister, Jane?”

“I don’t know, your honor. I did send a letter to her last address. My father—”

“Case continued four weeks for service. Next case.”

“I’m sorry, your honor, what does that mean and what do I do next?”

“You must file a Proof of Service that states under penalty of perjury that you have mailed a Notice of Petition to Administer Estate to your sister. Next.”

“But I don’t know where she is.”

“Find her. Your case has been continued. I am calling the next matter, and if you do not leave the courtroom, I will have the bailiff escort you out of the building.”

With that, Bob Jr.’s shoulders sag, and he leaves the courtroom in a hurry.

If Bob Jr. has all the answers for the court on the next hearing, he may get his approval. If not, his case will likely be continued once again. Once he has too many continuances, Bob Jr.’s case will be dismissed, and he will have to start all over again with a new petition.

But let’s say Bob Jr.’s matter was not continued, and let’s say it was not dismissed. Let’s say the judge smiled and said, “All right, Bob Jr., you have done everything you need to do. This is a miracle of miracles. I can’t believe it. You are so smart. You were so well prepared. I’m going to sign your order.” And the judge signs a court order approving his petition for letters testamentary.

After this positive hearing, a smiling Bob Jr. heads down to the clerk of the court, who he now knows works on the third floor. He stands in line, and says with good cheer, “The judge just signed my order. Please issue me letters testamentary and other documents the Friendly Bank is asking for.”

The clerk smiles back and says, “The order is still with the judge. We have to wait for the file to get down here.”

“When does that happen?”

“Sometimes it takes a week or two. Sometimes three or four.”

Bob Jr. is thinking, “You’ve got to be kidding, right?” But of course, he’s too smart to say this out loud.

Why does it take so long? You see, even in this digital day and age, courts still shuffle a lot of physical paper. Judges have to return physical files to clerks. Clerks put these on a stack, and then someone in the back office has to review all the paperwork it contains. Your court order is just one of these pieces of paper, which the judge has signed. Your letters testamentary are separate pieces of paper that the clerk signs after he or she makes sure all the language matches up, and the seal can be applied. This takes time.

In the end, a clerk may put the relevant letters in the mail to Bob Jr. or Bob Jr. may have to go back through the metal detectors in the court to pick it all up. It depends on the individual court’s process. Assuming all has run quite smoothly, a few months after his father’s death, Bob Jr. will get the authority to act. Friendly State Bank will finally get friendly.

But that’s not the end of the story. Bob Jr. will have to bring a petition to conclude the probate proceeding once all the work is done. Only after the petition for final distribution is final can Bob Jr. actually distribute his inheritance to himself.

What if the process doesn’t run smoothly? As of this writing, the average probate in California requires sixteen months. That includes the problem cases that run years, but none runs as short as two months.

Bottom line: it’s easy to start probate. It’s a lot harder to finish.

For more information or for answers to your questions about probate contact us today!

 

How Much Should a Living Trust Cost?

A living trust is an alternative to a Will when planning how and who will handle your affairs following your incapacity and death. Wills require probate court involvement, living trusts do not require probate court. The price of a Will is generally less than then price of a living trust. However, the overall cost of a Will is typically more than a living trust when considering probate fees that commonly exceed $50,000.

A living trust centered estate plan requires more skill, time and attention on the part of the lawyer hired to write it. In fact, the price of a living trust plan will often exceed 5 times the price of preparing a Will. However, since the overall cost of a living trust centered plan is often less than a Will, many California residents choose a living trust centered plan over a Will based plan. Working with an expert attorney is highly recommended.

So, what is the price of a living trust?  In large part, it is tied to the hourly rate of the lawyer. It takes no less than 10 hours of attorney time to educate the client, elicit the client’s hopes, fears, and aspirations for the client’s loved ones and client’s legacy. Then there is the follow up.  Making sure that assets that should go into the trust actually end up in the trust, takes time and expertise. Taking less than 10 hours doesn’t leave much time to know the client’s story and write that into a complete living trust estate plan.

Lawyers charge a range of fees. Some attorneys charge $300 per hour and others charge over $1,000 per hour. If you multiply that by 10, you get a starting point.  Fees can go higher – but only when the lawyer is adding value. A more sophisticated plan may be required due to various reasons: family dynamics, taxes, health, addiction, problem beneficiaries, creditors, divorces, business interests, etc. After all, every person has a unique story, and your estate plan should reflect that.

A good way of gauging what the price of the living trust plan will be and whether the lawyer will devote enough time to your matter is to simply ask that lawyer his or her hourly rate. If its $300 per hour, then you should expect to pay no less than $3,000 for a quality estate plan. If the lawyer charges $600 per hour expect to pay at least $6,000.  If the lawyer’s hourly rate is $300 per hour and the fee is $1000 for a living trust plan, your plan will likely not get the time, effort and attention it deserves.

For more answers and information on how we can help you with your living trust, contact us today!

 

Consider A Trust Bank

Last week we covered choosing a trustee. However if you can’t find the right individual family member or friend to take on the job of trustee, and you don’t like the idea of an independent professional fiduciary, you might want to consider a “trust bank” to administer your living trust.

Trust banks are institutions or branches of institutions that provide trust administration as a business. They will typically name a person to administer your trust, but that person will change over time, just as your bank representative may change over time. You are naming the trust bank, not their representative, as your trustee.

TWO KINDS OF TRUST BANKS

You will find two basic categories of trust banks, which charge radically different fees.

A “traditional” trust bank operates as a division of a large, traditional, general-purpose bank. The traditional trust bank handles both trust administration and investment of the trust funds. Traditional trust banks charge the highest fees, and they’ve been increasing their minimums over the years. Typically, you will have to pay them 1 percent to 2 percent of the total estate value each year. Over time, that can really add up.

Traditional trust banks also often invest in proprietary funds, so the bank earns revenue not only when they serve as trustee, but when the bank, as trustee, buys investments from the same bank that created the investments. Getting paid five times on the same money isn’t a bad deal for the large banks, but may be a bad deal for you and your beneficiaries.

But, you can also find a newer breed of what I call “non traditional trust banks.” These are smaller institutions, with the important difference that they don’t handle the investments within the estate. These non-traditional trust banks perform only a fiduciary function, and leave the investing to you and your own financial advisor. When you walk in, a non-traditional trust bank looks less like a bank and more like an accountant’s office. Fees at nontraditional trust banks generally tend to run only 30 percent or less compared to those at a traditional trust bank.

LOCATION MATTERS

The location of the bank and the assets matter. A lot.

If you live in a high-tax jurisdiction, you should consider a trust bank which operates only in a state without state income tax, because this may help your trust avoid your own state taxes. If you live in a state without state income taxes, this may not be an issue.

The state residency of the beneficiaries and the trustees will also matter.

Hence, a California resident may choose a trust bank in Nevada, South Dakota, or Alaska, so that after their death, continuing trusts for their loved ones don’t pay state income tax. However, if you are a Nevada resident and you name a California resident as the trustee of your trust, and this person actually starts serving as trustee, your Nevada-based trust will become subject to California state income taxation.

Astounding? Yes. Do you need a tax-savvy estate attorney to consult on these complex choices? Without question.

LET’S TALK ABOUT HONESTY

The chief advantage of naming a trust bank is simple. It won’t steal from your trust. I consider this a big plus. Why? Because the chief disadvantage of naming any individual, civilian or professional, as your trustee is equally simple. He or she can easily steal from your trust. Why? Because no one is watching what they do.

Throughout this book, I have urged you to create a living trust in order to avoid probate court. But yes, in a court proceeding, other people are at least watching. Indeed, with a court-supervised proceeding, any executor who is named for an estate must typically operate with a bond.

A bond is not exactly a form of insurance, but if the executor steals the money in your estate, the bonding company will replace the money. If the bond is for $100,000 and the executor steals $100,000, the bonding company will deposit $100,000 back into the estate. After that, of course, the bonding company will go after the thief to get the money back.

Trusts do not typically operate with bonds. And yes, thefts by the executors of wills and the trustees of living trusts do occur.

Some years ago, I was handling a probate case for a modest estate. The deceased left no will or living trust, but an executor had been named by the court. That executor was my client. About a month before the final hearing, my firm filed an accounting with the court in which we said, “Your honor, here’s all the money we started with. Here’s all the money that went out. Here’s what’s left, and we are pleased to say that all the numbers add up.”

A couple of days before the hearing, the judge asked, in a tentative ruling, “I want to know exactly how much cash this estate now has on hand. I know you filed this petition a month or two ago, so how much does the executor have today?”

He had asked a reasonable question, and I called my client. She picked up the phone and said, flat out, “Well, Jim, I gambled all the money away.”

Now I have a dilemma, because my client has told me she has committed a crime. She has admitted to embezzling the money from the estate, but because of attorney-client privilege, I cannot tell the judge. On the day of the hearing, however, I have to stand in front of his bench.

“Okay, Mr. Cunningham,” says the judge. “Tell me, how much is now in this estate?”

“Your honor,” I reply, “there’s nothing in the estate. The estate has zero dollars.”

“Well, what happened to all the money?”

“I can’t tell you.”

Now the judge gets a little angry. “The heck you can’t tell me. What happened to that money? You are the lawyer for the estate. You must know what happened.”

I say, “Your honor, I can’t tell you what happened to the money. That’s privileged.”

You can see the light go on in his head. His eyebrows go up. “Ah,” he nods. “Okay, I get it.”

Right then and there, the judge signed a bench warrant for my client’s arrest. She was picked up the following weekend and charged with embezzlement.

IS ANYBODY WATCHING?

In the story about the gambling executor, it turned out that she stole the money and blew it in less than a week. If a trustee decides to steal from a trust, actually holding her accountable for her crime can take a year or longer with a trust as opposed to a will, and drain tens of thousands of dollars in a way that no one notices. No lawyers or judges will be around to see it happening.

The power and independence of trustees provide the key benefit to living trusts, but that same power and independence means you must choose your trustees very wisely, indeed. If you have the slightest doubt about a potential trustee, choose someone else.

Choosing A Trustee

How do most people choose a trustee? What process will they follow to pick a candidate for a job which involves the proper handling of attorneys, bank officers, gun collections, and possibly millions of dollars?

Usually, mom and dad sit around the kitchen table filling out estate documents. They come to the blank for filling in the trustee’s name. Who will they choose to execute their will and trust when they fall ill or pass away?

“Well, I don’t know,” says Dad. “Of the three kids, Johnny’s the oldest. We’ll pick him as trustee. It should be the oldest, right? As an honor?”

Then the documents are filed away in a drawer for thirty years, and pulled out only when both mom and dad have died.

Well, Johnny was a great guy at twenty-one, but will he be the right person to manage an estate as trustee at fifty one? Does he have the time, the drive, and the integrity to do this right?

Thirty years later, maybe Johnny himself isn’t so sure. Maybe Johnny has grown into a super-busy businessman with little time or interest in his parent’s trust.

Or, maybe Johnny hates paperwork and lives on a fishing boat in Tampa Bay, without a phone.

THREE’S A CROWD

Then again, back at that kitchen table thirty years earlier, maybe mom and dad just couldn’t decide. Maybe they didn’t want to make any of their kids angry, so Mom said, “I know, let’s name all three of the kids as joint trustees!”

Now, all these years later, when the three kids are middle-aged, they have a serious problem. Now they see each other as three cooks in the same, ugly kitchen.

Johnny and Eddie never agree, so Lisa usually has the veto, and she usually goes with Eddie. Anger frequently flares, and it’s not really the kids’ fault. Anytime you have more than one trustee, it’s tough to make any big decision. Even tough to see the decision through.

Should Johnny, Eddie, and Lisa sell the family land in Hawaii to a developer? With only one trustee, a decision can be fast. But with three, things can get complicated and stay complicated.

Say that Eddie and Lisa agree to sell. As a majority, they sign the papers, and the process of the sale begins. But Johnny hates the idea of cutting down all those coconut trees, and refuses to sign. The company buying the land gets nervous. Sure, they’ve won a majority vote among the trustees, but what if that one rogue trustee goes off and does something to block the sale down the line? The buyers may think, “Unless all three trustees sign off, we’d better look elsewhere.”

A good attorney would have advised mom and dad to choose a single trustee—sometimes two if they get along. And an attorney would have advised them to update their estate plan as their kids grew and their circumstances changed. That one, cozy, kitchen table session just wasn’t enough.

GO WITH EXPERIENCE?

When people sit down to choose a trustee, they must sometimes choose between a family member with no experience and a family member who has administered a trust before. Both situations may present an issue.

Someone who has never administered a trust may be starting blind. But someone who has done it before may be burned out. Here’s a common situation:

Mom and dad sit down at the kitchen table to fill out their trust documents, and Mom says, “Well, my sister was the trustee for my mother, and she was the trustee for both my brothers’ estates. She’s done this three or four times, so she’s an expert by now. I want to name her.”

Well, she’d better check with her sister, because her sister may not want the job. I have plenty of clients who come in and say, “Darn it (or a much stronger expletive), this is the fifth trust I’m going to have to administer, and everyone keeps naming me, because I’m the person in the family who apparently does all of this. Well, sorry, I don’t want to do trust administration anymore. It’s a pain in the ass. I don’t want to spend the final years of my life handling everyone else’s estates. I’d rather garden. Or head off on a cruise. Or just about anything else. How can I get out of this?”

MORE FACTORS TO CONSIDER

Regardless of experience, do not name someone as trustee “to honor” them. Name someone who you believe to be trustworthy and responsible.

Let’s start with that word “responsible.” Merely “well intentioned” will not cut it. You want someone who can get the job done.

If you don’t have a friend or family member you consider responsible, what I call a “civilian,” you may want to consider a “private professional fiduciary.” These are people who hold themselves out to the world as professional trust administrators. Some states actually have a registry for private professional fiduciaries and may require them to act under a bond (see below for more on bonds). Some states don’t regulate the profession at all. A trustee has tremendous and independent power, so if you go the professional route, do your due diligence.

Whether you choose a civilian or professional trustee, consider everyone’s age carefully.

If you are in your fifties or sixties, and you name a trustee about your same age, remember that that person will age right along with you. It’s likely that you will have reached your eighties or nineties by the time you need your trustee.

A trustee who’s also eighty or ninety years old may be in worse shape than you. Or already gone.

Professional fiduciaries are often second-career folks who start in their fifties, so they may not be around when the time comes. You may be dealing with their successor, or they may have named no successor at all. As part of choosing a private professional, you must ask, “What is your succession plan? Who’s the next person in line? What happens if you are hit by a bus?”

If you choose any individual, you must review your choice periodically. People change. Their circumstances change. They pass away.

What happens if you cannot find the right person for the job? Stay tuned next week for our blog on Trust Banks as we answer this question for you. And as always, if you have questions or are ready to begin your estate planning, contact us today!