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Lessons from mom on estate planning

It’s only been three weeks, to the day, since my mom died and I have a few thoughts on what I have learned in regard to her estate planning matters. Some things done right and things not done right.

VICTORY: My mom named me as co-trustee on her trust almost 10 years ago when she was in her mid-60’s. At the time she traveled a lot so it was convenient to have me on her bank accounts if she was out of the country. However, merely being co-owner is not enough it should be in the trust and as co-trustees. Upon her death I was already on her account so was able to keep on writing checks as needed.

VICTORY: My mom was an estate planning attorney and was pretty careful to acquire assets in the name of her trust. I believe we will avoid a trip to the probate court. Might be a few small refund checks, and the like, that come in to her name but those can be dealt with by small estate affidavit.

VICTORY: My mom had some cash in her checking account. It is amazing how much it costs to die in this country. Yes, a lot of things are optional but if given the option, when it’s your mom or dad, don’t you want to say YES?  Having cash available makes it so you can say yes to every upgrade, every reasonable option, and help send your loved one out in proper style! Plus, you may need to pack up a house, hire people, hire movers, etc….  Cash on hand comes in handy!

SET BACK: My mom owned a few, low value, items not in her trust. Most notably factional shares of stock. I can not tell you how important it is to get all your stocks and investments into your trust and please consider holding it all at a stock brokerage company rather than in paper form or in direct investment accounts with each company. The amount of paperwork is tremendous… even when the dollar values are low.

SET BACK: My mom liked to have her assets spread out at a few different financial institutions. With the Patriot Act every bank transaction is a major fiasco. In my opinion less is more when it comes to financial institutions. Assuming there are not FDIC insurance issues (over $250k for cash deposits) I encourage consolidation. In particular I like to have stocks consolidated to one institution. It makes it MUCH easier when someone dies.

At the moment that’s what I have. I am sure there will be more, good and bad, that I learn. In closing I want to reiterate the above set back though. Please get ALL your assets in your trust and please consider putting all stock into ONE stock brokerage to make transfer easier after death!

-John

Losing a loved one

We have all lost a loved one… or will eventually lose a loved one. Losing a loved one is hard there is no question. It is a sad reality of life though.  I lost my dad when I was 14. I remember it well of course.  My mom was a regular on the grief group circuit around west Los Angeles. We talked about the good times we had had with my dad and we moved on. We never forgot him, of course, but life does go on.  As an estate planning attorney, since 1994, I have talked to countless families about losing their loved ones.  In fact, sometimes it’s the loved one talking to me before they die but they know their day is coming very soon due to illness.

My world was rocked on March 11, 2016 when I received a call that my mom and step-father were dead.  Sadly it was a murder-suicide. My step-father, was a great man, who had seemingly benign paranoia issues. Obviously it was much worse than we realized. Ask questions! Do not ignore! Does the picture below look like someone who is unhappy?

Perhaps my message is more of a public service announcement… DO NOT IGNORE MENTAL HEALTH red flags with your loved ones. Even very small red flags could be something worse. Encourage your family and friends to seek medical advice. Help them get to the doctor. I do not believe there was a single member of our families that was not shocked and surprised by the actions he took.  Let’s avoid more surprises like this and deal with mental health head on!

Of course this is an estate planning and probate law blog so let’s talk about that. My mom’s estate plan was pretty well thought out and planned. However, even we didn’t have it 100% organized. There are still a few small assets not in her trust. Not a big deal but more paperwork for me to deal with. Get your trust set up, get ALL your assets correctly tied to your trust, eliminate the unnecessary assets, and simplify what you can! Your loved ones will be grateful to you!

Both my parents were attorneys. I know, I know, that’s really scary. Let me assure you that dinner time conversation, in our house, was horrible growing up.  My mom actually went back to law school when I was about 7 or 8 so our dinner times, for 3 years, was dominated by law school talk.  How funny that 15 years later I would go to law school!  My mom even did estate planning, like me, so we would go to estate planning conferences together.  What a great way to spend time with your mom!

There are several articles about my mom on the web but I thought this one, from the Logan Herald Journal, was the best so I share the link for you here. Please get your estate plan done as it can minimize the confusion and problems if a loved one dies suddenly.

RIP, Mary Flynn Palley, 1942-2016.

-John

mary.dell

 

 

 

Billable Hours – be careful!

I was talking to one of my probate clients yesterday and he told me a story about a bill he received from the attorney who drafted his mom’s will and trust which include some scary billable hours.  My client, who we will call Bob called the drafting attorney who we will call Tom.  Bob called Tom and they spoke for 20 minutes.  It was a couple of days after Bob’s mom died and he said that Tom was very respectful on the phone and the call was primarily personal in nature and not about probate or trust administration “business.”  Bob told me how much Tom charged him and I was in such shock I wanted to share.

Before I go on let me state the purpose of this blog post.  BE VERY CLEAR WHEN YOU SPEAK TO AN ATTORNEY TO DETERMINE IF YOU HAVE HIRED THEM OR NOT.  Unfortunately some attorneys feel that every phone call is an opportunity to turn the clock on and start billing.  I pride myself on NOT following such horrifying practices but, sadly, there are still attorneys that operate like this.  So, when you call the attorney that drafted your mom’s will or trust ask them “Am I being charged for this call?”  Also you can tell them, “I am not hiring you at this point I am just gathering some information….”

It’s not always clear if you have hired them or not so try to make it clear. There is nothing to be embarrassed about. It’s important for both you and the attorney to avoid miscommunications and misunderstandings.

In this case, as mentioned, Bob called Tom a couple days after his mom died. He was still in shock and, obviously, in grief.  To me that’s a great opportunity to make sure my billable hour clock is NOT on.  It’s a great opportunity to talk for 10 or 15 minutes and set the stage for how I can help that person get through the trust or probate process.  If they hire me I will bill for my subsequent time but I try to make it very clear if I have been hired or not before I start charging.  Also, I often operate on a flat fee basis to avoid this type of billable hour shock. What does your attorney do?

Some of the highlights (I am not taking word for word from the bill):

Review will, trust, file and have phone call with Bob 2.3 (yes, that’s over 2 hours for a 20 minute phone call)

Plus a .2 charge by the office paralegal for her work in prepping Tom for the big phone call.

Draft fee agreement, email client, etc…  .9 (yes, that’s one hour to fill out a form fee agreement – NO we do not charge you for preparing a fee agreement)

On a Monday, above, Tom billed 2.3 hours (let me repeat HOURS) reviewing a trust and will that he himself wrote a few years earlier.  On Wednesday he billed 2.9 additional hours for reviewing the documents. I imagine after 5 hours of review he had them down to memory, right!?

A few other misc charges by Tom and also his paralegal including a lot of back and forth stuff between them.

I won’t bore you with every detail but it totaled over EIGHT HOURS and over $1,900 for a 20 minute phone call. I call this billable hour shock!  Bob doesn’t feel like he hired Tom but Tom, apparently, thought he was hired.  Bob seems pretty astute to me and thus I tend to believe him that he had no clue he had hired Tom. In fact, he mentioned when he got the proposed fee agreement in the mail he just threw it away because he didn’t intend to hire Tom.

Now the State Bar of California has ethics rules for lawyers. Yes, really and yes I am sure there is a funny lawyer joke that should be inserted here.  One ethics rule specifies that if the legal bill (fees and costs) is reasonably expected to exceed $1,000 we are to obtain a written fee agreement for the work.  In my office we try to do this for every matter, even if under $1,000, to avoid confusion and misunderstandings.  A written fee agreement takes a lot of the guess work out of it!

Some things you can do to protect yourself from this problem that Bob has:

  • Clearly state you are not hiring the attorney yet – just gathering information;
  • Ask if you are being charged for the call;
  • Perhaps send a follow up email “Thank you for the time today if I decide to hire your firm I will notify you by email”;

If you do decide to hire them you might then ask some further questions:

  • Ask what their hourly rate is;
  • Ask if they charge for paralegal time;
  • Ask if they add on an administrative fee;
  • Ask if they charge you for every call and every email;
  • Ask if their paralegal or other attorneys in the office also bill on your file;
  • Ask the attorney for an estimate of his fees for the work that is needed;
  • Ask the attorney if they offer flat fee or contingency fee arrangements;

Oh ya, I did gave Bob some suggestions for clearing this bill up. I know Tom. He has a good reputation and I think it was just a mistake on his part. Although as I type that it’s hard to not think just a little bit lower of Tom.  Honestly, it’s hard for me to think it’s just a mistake.   Whatever the case, I am hopeful he will agree to write off that bill in total.  Bob told me he doesn’t like to be in debt but he really feels it’s unfair. Hopefully Bob can resolve it quickly. If Tom is half as smart as I think he is it will take one email from Bob to resolve this and close the matter.

Also, I think this cemented things for Bob that he was smart to hire me and not Tom. Hey, just being honest here!

You should be very comfortable with the attorney BEFORE you hire them. If you aren’t then I would keep looking!   -John

The dog isn't qualified so we'll only bill you his hours at half the usual rate...

The dog isn’t qualified so we’ll only bill you his hours at half the usual rate…

Forgotten Assets Commonly Omitted from Trust funding

Having been an estate planning attorney for over 20 years I have come up with a short list of the forgotten assets that are most commonly omitted from trust funding.  That is, these assets are frequently found after death titled in individual name rather than the trust. In some cases they can be cleared up  by small estate affidavit, under $150,000 probate successions, Heggstad petitions and in some cases full probates.  However, it’s important to realize that in any of the above examples there are unnecessary attorney fees being spent. Our job is to help you avoid that unnecessary fees!  So, without further adieu, here are some assets we commonly find after death having been omitted (accidentally for the most part) from trusts.

LOANS – By far the most commonly omitted from trusts are loans. Even when secured by a deed of trust. People loan money and do not seem to put them into their trust. To clarify I am talking about when you loan money to someone else so it’s an asset and not an obligation. The promissory note and deed of trust should be payable to the trust and not to you as an individual. I bet 50% of people with notes have them in their name and not their trust name.

BONDS – People have EE, HH, and other governmental bonds sitting in their safes or safe deposit boxes. A large percentage are in their names rather than their trust names.  Before I go on, let me say that if they are small in value maybe it’s easier to cash them out. However, if larger value then get them changed into your trust name. You will need to fill out governmental forms to make that happen but I would say it’s worth it!

STOCK CERTIFICATES – People still have stock certificates in their safes or safe deposit boxes. Sometimes large numbers of shares but more often small numbers.  Stocks they received as gifts, as an employee bonus, or they liked holding the paper. In any event, I often see these in individual names rather than owned by a trust. If they are commonly traded securities you might put them into your brokerage account for simplicity!

BUSINESS INTERESTS –  Many people own a percentage of a small business. Maybe an LLC, a corporation, an “S-Corp,” a partnership or even a sole proprietorship. You should have the business records updated to reflect your trust ownership. At a bare minimum you should sign an assignment of the business interests to your trust. If the value is low it’s not a big deal but if the value exceeds $150,000 it will require a full probate to legally transfer the assets to a trust.

TIMESHARES – I understand that you had a couple mai tais when you bought the timeshare so maybe you forgot about your trust. However, eventually you remember you have a trust, right!?  I almost have to fight some clients to put their timeshare into their trust. “It’s not worth enough to worry about” is what I always hear. Ya, it might not be worth anything but it will be a headache for your kids after you are incapacitated or dead. Put it in your trust now!

There are other assets omitted from trusts all the time but the above are ones people don’t think about for some reason. They forgot about their trust with these assets. Don’t be that guy! Get it done right and get everything into your trust.

-John

PATH – Protecting Americans From Tax Hikes Act of 2015

We in the tax and estate planning world love acronyms so no surprise the governments newest tax law is called “PATH” which stands for Protecting Americans from Tax Hikes act of 2015.   I like to blog about estate taxes primarily but as the focus in estate planning moves toward incomes taxes I like to mention them as well when I can.  Here’s a link to the government website:

Protecting Americans From Tax Hikes Act of 2015

Frankly a lot of the stuff in there doesn’t apply to most of my clients.  For example I saw that it gives permanent extension of certain provisions related to non-US shareholders in RICs. I had to look up what a RIC is!  It appears to be a “regulated investment company” so now I have learned something new for the day!

Other areas of importance to few of my clients include provisions that impact foreign controlled corporations, non-US investment in US based real estate, and a lot of provisions related to the tax treatment of sales in REITs and other technical aspects of REITs.

However, the one that several of my wealthier clients may like to hear is that the ability to make charitable contributions from your retirement account, and treat it as your distribution for the year, has been made permanent.  This has been an on-again off-again law in recent years but it’s now permanent. If you want to take advantage of this you need to do so immediately!  The gifts must be made by December 31, 2015 to take advantage of the law for this year.  However, now that it’s permanent you can use it toward your 2016 mandatory distributions next week!  Of course, I always wonder what “permanent” means to the people who make the laws in Washington DC!?

Happy new year!

-John

 

NEW IRS Form 8971 – BASIS reporting

HOT OFF THE PRESSES:  The Internal Revenue Service has released a draft of a new Form 8971 for reporting basis information in accordance with new IRC section 6035 for assets held by a decedent and reported on a federal estate tax return (Form 706) filed on or after August 1, 2015. The form says it is to be signed by the “executor” of the estate but I believe a “trustee” can sign also. In any event it is likely part of your fiduciary duty and you should talk to your accountant about this when you file a form 706 “estate tax return.”  Also, remember that estate tax returns are to be filed within 9 months of death but you can ask for a 6 month extension if you file for it within the first 9 months. The link above goes right to the sample form.

2016 Gift and Estate Tax Exemptions

The IRS recently released the tax adjustments for 2016. As our firm focuses on gift and estate tax planning I wanted to share the relevant numbers with you.

The annual gift exemption remains at $14,000. As a reminder that is the amount each person can give away, each year, to any individual, and all without tax.  This can be given to relatives or friends. So, for example, if grandma and grandpa are worried that they will have an estate subject to estate tax at death they can write $14,000 checks to every child, every grandchild, etc…. In fact, grandma and grandpa can EACH write those checks so it’s really $28,000 in total.  That is the total of all gifts for the year so it’s not a bad idea to write your checks for just under $14,000 to allow for birthday and holiday gifts!

The federal gift and estate exemption (that is what you can give away at death or during life in excess of the $14k gifts mentioned above) is up to $5,450,000. This is up from $5,430,000 in 2015. It’s important to note that this tax does not effect very many people but some people accidentally slip into it.  This is a tax on all assets you own at death. This includes IRAs, 401ks, and other retirement plans in addition to your home, banks, stocks, etc…. Also, it includes the death benefit in life insurance that you own at death.

There are more numbers on the IRS website for Rev Proc 2015-53 at this link.  On that page you can see the income tax adjustments as well.

Here’s to a happy holidays in 2015 and an even better 2016 to you and yours!  -John

Funding a bank account “in” to a California revocable living family trust

For 20 years I have been telling people how to “put” their bank accounts and other assets into their trusts.  Some things, like real estate, are pretty easy. We just prepare a deed, our client signs it, and we send it in for recording.  Clients who work with full service financial professionals also have it easy as the staff at those financial companies tend to be well trained at trust funding.

We usually start with a letter to the financial institution. If that doesn’t do the trick then we always advise our clients to go into the branch if that’s possible. Some things are just best done in person though.  I have not put a new asset into to my wife and my trust in some years.  We have had a trust for about 15 years, banked at the same credit union throughout, and never put our main bank account into our revocable trust.  What’s that story about the cobbler’s son….

Ok, the balance isn’t huge but it’s enough that it would come in handy for our successor trustee should they need money to pay bills if we are incapacitated or deceased. So we finally did it!  I actually first went in a few weeks ago but the friendly credit union employee told me that my wife had to be there since she was primary holder on the account. So for the next two or three weeks my wife and I talked about going in. Finally yesterday, Saturday, we strolled in as they opened their doors at 9:00.  The whole process took 15 minutes.

So what happened?

We handed the credit union employee our certification of trust or trust certificate or, what some call, a certified extract or abstract. In summary it’s a shortened version of your trust.  Our “CE” is usually two pages including the notary block.  In our opinion the goal of the CE is brevity and just giving the bank, credit union or financial institution what they need.  I am going with the assumption that banks and credit unions generally have the same requirements. However, is important to note that each bank or CU has their own rules. Plus, as I like to (half) joke, each bank or credit union branch may have their own rules… and of course each bank or CU employee may do things differently.  So take this for our actual experience. Your experience should be similar.

We gave the employee the CE and he proceeded to go through our account on his computer.  We have several sub accounts set up so it took him a several minutes to check boxes and enter the trust name for each one.  Then he took the name of our successor trustee, from the CE, and entered that into the computer.  He then asked for the name of our beneficiaries. I told him that in the past I have preferred to put “named individuals” as I don’t like to divulge the private information that is our beneficiaries (actually just our kids).  He explained that the NCUSIF (National Credit Union Insurance Fund) which, he claimed, is essentially the same as the bank’s FDIC gives the $250,000 per person insurance to each beneficiary.

Ok, let’s stop here for a second and take a detour. I do not know if what he says is right. Since my account has well below $250,000 it’s a non-issue for me. However, if your account is anywhere close to $250,000 you should definitely check, double check and triple check the rules.  My advice is always to have less than $250,000 at any one bank. Why take a chance with interpreting the FDIC or NCUSIF rules?  Is it really the contingent beneficiaries I asked the employee?  Why not the current beneficiaries? It doesn’t make any sense to me. So, again, let me repeat that I encourage you to never exceed $250,000 at a financial institution unless you are comfortable with their insurance rules.

So the nice and informative employee finished inputting everything and then had us sign (electronically) new signature cards confirming everything on the account and information about our trust.  It was easy.

Let me stress a couple things:

  1. Our account numbers did NOT change at our credit union (this varies among different banks and CUs);
  2. Our checks do NOT have the name of our trust on them (again this varies);
  3. It took about 15 minutes.

The key here that to have a trust and not spend these 15 minutes just exposes your loved ones to a probate after your passing or incapacity so take the time and fund that trust!

Contact us with questions.  -John

 

 

Pharmaceutical drug class action lawsuits in PROBATE COURT

We have handled many pharmaceutical drug class action and personal injury lawsuits in probate court.  Recently we have represented many people pursuing settlements in the Actos liver medication lawsuits. We are not the class action or personal injury lawyer. We are the probate attorneys who help when the person who took the medication passed away.  We have significant experience representing individuals in these cases and also have worked closely with the class action lawyers when asked.  If you lost a loved one and are pursuing a pharmaceutical drug class action or personal injury lawsuits, and need probate court help, please contact us.  We can help with probate, conservatorship or guardianship situations.  Likewise, if you are a class action or personal injury lawyer needing help for your California decedents or disabled clients we can help you. We are efficient, friendly and experienced. Contact us today to discuss how we can help YOU!  -John

 

2016 Federal Gift and Estate Tax Exemptions

I just learned of estimated gift and estate tax exemption for 2016. Again, this is just an estimate but comes from a reliable source. They project that the federal gift and estate tax exemption will be $5,450,000 ($5.45m) which is up from this year’s $5,430,000.  They project that the annual gift tax exclusion will remain at $14,000. If you have questions about how you can best utilize these exemptions in your estate plan contact us to discuss. -John