Things More Important Than Money

In case anyone feels I have neglected my duties to inform the public of the needs for estate planning, and in the aftermath of family members feuding over an inheritance when there is no will or revocable trust, here is a statistic for you: According to Lawyers.com, only 51 percent of adults reported they had estate-planning documents, compared with 64 percent in 2007.

The reason for that 13 percent drop in the past three years is obvious. More people were wondering if they were going to have an estate, let alone one left to distribute as an inheritance. Most of the reasons given for not having an estate plan (or call it a simple will) is the need to focus on paying bills and “other essential money priorities”, according to the survey.

Please heed the fact that your estate plan is the most essential gift you can leave as your legacy. If you care about your family’s mental and financial interest after your death, you need to have a plan for distribution of your estate — from the sale of your house to the jam jars that grandma passed down to your mom. In fact, about the time the death bed comes out, you may find that what you thought was essential turned out not to have much meaning at all.

An article in the Sacramento Bee by Claudia Buck titled “Estate Planning Can Help Prevent Family Feuds” reviewed a book called “Where There’s an Inheritance …” by attorney Leo Kotzer from Toronto. The book chronicles 80 true-life scenarios of senseless infighting between siblings and other relations once the mother and father are gone.

The fighting occurs usually over the most mundane items that weren’t specifically left to a certain heir because the will, for example, used the same old boilerplate paragraph that states in effect: ”All of my personal property both tangible and intangible, including furniture and furnishings, are left to my three children to share and share alike.”

The mother and father think their children would never be selfish enough not to distribute these personal items in an equitable and cooperative way between them, because the parents haven’t been there at the end when the family falls apart after they are gone.

The first example captures the essence of all the other ridiculous and unforeseen fights over nothing that is of major value. They can be items with the price tag still on them, yet the price for attorney fees after three years of fighting can be $15,000. The vignette involves squabbling sisters, one of whom was incensed that a crystal vase she had given her mother should have been given directly to her. Her angry solution was to “smash it to smithereens in a parking lot so no one could have it.”

The entire underlying theme of my own book, The Heroes Way for Baby Boomers, besides saving estate tax dollars, is to make certain the estate is so well planned that this type of squabbling over anything in your estate will never happen.

It is estimated that 60 percent or more of the population lives in a blended family. The term “blended family” is a modern term of art used in the legal field. It includes that family where the parents are on their second or third marriage, have their children, their stepchildren and perhaps children together.

In the dictionary, the word “blended” is defined as “to mix smoothly and inseparably together.” Given that definition, and the character of the typical “blended family,” the term should probably be changed to “unblended family.”

From a litigator’s point of view, this family is living in a volatile world and is subject to “probable litigation” upon the death of the first spouse. This can happen whether the estate has something to fight over or not. The best way to understand what to do in the blended family situation is to understand what will happen if you do nothing. Remember that all of us have an estate plan whether we like it or not.

California, as with every state, has devised a plan that will distribute your assets upon your death in accordance with the rules of intestate succession found in the Probate Code.

Mark Cornwall: The Post-Recession Trustee - Noozhawk.com

Accusations of fraud and deceit against Goldman Sachs Group whirled across the headlines last weekend, calling them “a narrative for the economic crisis” that has besieged the country. Another two trusted gentlemen of Wall Street, John Paulson of Paulson & Co. and 31-year-old Frenchman Fabrice Tourre, made a $1 billion betting against the mortgage bubble they created and heralding the investment as a golden opportunity — when, in fact, it was intentionally made of junk and designed to fail.

As those two sociopaths made a $1 billion off us everyday people, life has gone on. People have died without estate plans, and others are trying to figure out whether they will have an estate to plan. Yet others are trustees of specific trusts in which they have the duty to obey the desires of the dead trustor, and the responsibility of prudent financial dealings to preserve the trust principal while trying to make the live beneficiary of the trust happy.

But there comes that day when the beneficiary has almost outlived the value of the trust. That is the day when the trustee goes to his or her financial adviser who has been helping preserve the trust capital for the past 20 years.

There have been huge reversals in the stock market, as well as the mortgage, secondary and trust deed markets. The adviser calculates the sum of expenses against the amount of money and earnings left in the trust, and with shock and awe the trustee can see there is only enough money for the 76-year-old beneficiary to live two more years at her rate of spending. He was told she had only five years to live when he took over the trust, so she is already 15 years ahead. The trustee started with $450,000 and made her more than $4 million, which she has lived on for 20 years. Now, because of alleged criminals such as Paulson and Tourre, she has only two years worth of money left.

There is only one thing to do. She must downsize — and do so immediately.

Now comes the hard part. The trustee must go to her home and tell her she must sell it because the mortgage is barely worth the value of the home. She must find something else, perhaps a rental for a single person and her dog. She has no need for a three-bedroom, two-bathroom house built in the 1960s. Her weekly allowance also must be cut. In short, the time has come for her to realize that money is finite, and frugality must become her lifestyle. Who knows how long she will live?

Unfortunately, she doesn’t understand a word the trustee is telling her about all this finance stuff, which is why she has a trustee in the first place. There are many rules and comments in the 2008 “Guide to the California Rules of Professional Conduct for Estate Planning, Trust and Probate Counsel” published by the State Bar of California, and more laws, rules and regulations in the Probate Code defining how a trustee should be managing his or her duties as a trustee. But there are no rules or suggestions on how to handle this situation.

The trustee could resign his position to a bank, and it would be happy to tell the beneficiary where to go — whether she likes it or not. Or, the trustee could drag the beneficiary into court and have the judge issue orders he believes are in the beneficiary’s best interest, such as having a conservator assigned to her. That would definitely put an end to a 20-year relationship with a client or old friend.

There is no easy answer. The law books are filled with words such as “reasonable,” “prudent,” “timely” and “fair,” and long lists of duties that must be initiated and observed. The nonprofessional trustee or fiduciary has no idea what the dead friend got him into when he asked him to be a trustee.

Whatever the case may be, if you are the trustee, you must get the job done in a favorable manner for the beneficiary — whether she likes it or not.

— No opinion herein is a “marketed opinion” and no information provided herein can be used to avoid tax penalties for which the taxpayer would otherwise be responsible. Mark S. Cornwall has lived in Santa Barbara for more than 30 years and practiced law here for 25 years. He is accepting new clients. His book, Estate Planning: The Heroes Way for Baby Boomers, can be purchased via his Web site, www.MarkCornwall.com; Amazon.com; or locally at Chaucer’s and Borders bookstores. To schedule an appointment, contact him at mark@babyboomerpublishing.com or 805.845.7558.

THE SLOW DEATH OF AN ESTATE PLAN

THE SLOW DEATH OF AN ESTATE PLAN

Estate plans in a Revocable Trust or Will are failing to meet their objectives, if written before the global economic crisis and the farcical TARP plan. That is the national plan that restored wealth to the investment bankers and hedge funds managers, but is squeezing the life out of America’s middle-class businessmen or women.

If you have been on the same job for the last four or five years, and your residential mortgage does not exceed 30% of your income, and as of January 1, 2010 in California you have met the raised bar having at least a 45% loan to value of your newly appraised home, then congratulations! You will be able to refinance your adjustable loan, defined as any loan that is due in the short term. With the lowest interest rates in modern history, you can lower your payment by perhaps thousands of dollars a month allowing you to keep ownership of your home.

However, take the middle-American. That can be a doctor or a lawyer, or any small business owner, or person that works on commission like an insurance broker, realtor, pharmaceutical rep, or any other occupations hit hard by the recession and the employees were paid according to how much they sold. What they all have in common is that sometimes they have great years and sometimes they don’t. In this type of recession most of them don’t.

Let’s add to the above facts that the American just turned 60 years old. He does not have a pension to fall back on because he never worked for a paycheck from a large company or government agency for twenty or thirty years. That would have assured him security in his elder years by providing pension benefits during his working years by his employer having to add as much money to his 401K plan as he did. Or worked at a government job where it is next to impossible to get fired and he simply put in his time.

Since the odds are stacked against the middle –class businessman today, with the on again, off again backing of the Small Business Administration that does not seem to know what to do, I can assure you that regardless of that 60 year old’s perfect credit record, all of the hard work he has put into the system over the last 35 years, the number of jobs he has provided, the assets he has accumulated and even if he had a million dollars in the bank; if he has had two bad years of tax returns that do not fit into the round hole of banking rules, then this square peg does not fit the profile and his residential loan will not be refinanced. He will have to sell.

In other words the American Dream, as we more mature adults knew it has been undermined by the greed of the 2% at the top, allowed to take enormous risk with tax payer money and not worry about paying it back, while those that take reasonable risk to build a business of their own have no options left to help them out. They are neither young enough, or not poor enough, or not stupid enough to get themselves in such an upside down financial crunch that the government has deemed them worthy of saving.

The best that sixty year old can do is go to his lender and explain how the $70,000 he made from income properties last year caused his gross financial portfolio to expand, not contract, and because he used all legal write-offs on his taxes to bring that $70,000 down to net zero, it does not mean he did not earn $70,000 on top of the other $70,000 he earned. You would think that if you had a banker that would listen, look at your FICA score, your assets and considered the $200,000 you just deposited in their bank, they may give you a crack at a decent refinance, or any refinance at all.

But unfortunately none of the above is taken into consideration. Every bank is restrained by the federal and state banking rules. If this recession has taught Americans anything, it is that humanity and common sense does not exist in the world of money lending. If there are too few rules then greed by the loan broker takes over. With too many rules, we are all numbers and no amount of integrity and hard work can make those numbers change.

After that, all you get are promises from people so caveat emptor. Something has to change, so be patient if you can. If you are sixty and it doesn’t change, then sell it all and enjoy the rest of your life. Capital gains don’t exist for the rest of the year.

JOBS, JOBS, AND MORE JOBS

In the world of Estate Planning nothing has changed from the beginning of the year. The Trust and Estates section of the State Bar is putting on a seminar in April entitled, “Estate Planning Opportunities in a World of Transfer Tax Chaos.” There has been not so much as a whimper of debate as far as correcting the problem of repealing the repeal of Estate Tax since the Senate excused itself for Christmas last year.

Of course the focus of our Congress, in case you haven’t heard, has been healthcare. Since that doesn’t really go into effect until 2014 and since the L.A. Times reported over the weekend that “State voters largely back health law,” that has left some time to discuss the debate over jobs, jobs and more jobs. I am in favor of anybody that promotes jobs for every person that wants to work.

When President Obama announced opening up the coastline for oil drilling, with the exception of the West Coast of course, but most particularly in the Chukchi Sea and Beaufort Sea above the North Slope of Alaska I recognized an opportunity for any man or woman not to just get a job, but to get rich doing that job.

Above the North Slope it is the coldest of the cold. It is dark nine months out of the year and the sun never reaches above the horizon during the summer. For those readers that were of working age in 1974, they may recall, or worked on, the oil and gas pipeline that stretched 3,000 miles from the top of Alaska, through the Yukon to the Midwest of America. It was a tremendous undertaking, but it worked, and about 200,000 members of the teamsters, laborers, carpenters, steel workers, chambermaids, cooks, welders and many others that had been making $10,000 to $12,000 a years, were suddenly making over $100,000 a year.

There were at least 100,000 employees working at all times on that pipeline and another 100,000 to replace those doing one month on and one month off. But there is so much money in oil that not only do the Native Eskimos and Indians still receive the lion’s share of the yearly stipend, but every citizen of Alaska receives as much as $6,000 each year, and there are no State taxes.

Strangely enough, although I had graduated from college and was working in the logging industry in Southeast Alaska in 1974, the Pipeline was hiring anyone with an arm and a leg to make this kind of money, and feast on steak and lobster after their shift. By the time I arrived in Anchorage in November of 1975, I went to the teamster’s call twice a day for eight months and never got called to work. They had already hired too many with seniority over me.

So it was back to a lousy $7.10 an hour, the best you could get anywhere else in America in 1976 for risking your life as a “rigging slinger” on Prince of Wales Island. But this was not for long. I realized on any given day Anchorage was filled with men and women with more money than they ever thought they would have, and most of them wanted more of it.

To fulfill this need emerged the entrepreneurs that built syndicates from workers’ funds to buy large parcels of land – deals from the top of the Captain Cook Hotel to any one of many strip clubs. These parcels appreciated at an astronomical rate as though there was no land left in this boom town. The parcels were subdivided and sold into lots creating more jobs for people building houses and strip malls with yarn and fingernail shops.

What appeared unforeseeable at the time was that Alaska is not a very hospitable place to live during the eight months of winter. Therefore, when the pipeline was completed in 1979, there was a full scale exodus from the State, leaving all those new homes to crack and whither in the freezing weather. The only people making money were in the U-Haul business. Many very big names went bankrupt depending on what they were left owning.

Then something happened it seems hard to imagine. It was the decision of the banks holding those mortgages, to plow through new subdivisions, destroying a thousand new homes in their wake. The purpose was to bring a bottom to the decline in the value of existing homes which had declined over 60%.

Anyone looking for an island subdivision in Kenai, Alaska? Please go to www.IslandAlaska.com.