Estate Planning for Baby Boomers

DePUY ORTHOPAEDICS aka JOHNSON and JOHNSON’S PROFIT MARGIN TRUMPS HUMAN SUFFERING AGAIN

2010-10-27T17:02:00.000-07:00

Upon my return from the National Hip Replacement Summit in Chicago, IL, I believe it is important to get the word out about how dangerous this defective DePuy hip replacement surgery has been. A massive tort action will be needed if you or a loved one, or anybody you know has been a recipient of a DePuy ASR device as part of a hip replacement surgery since 2003. You should contact me immediately for legal advice.

What has came to light last August is that DePuy Orthopaedics, a subsidiary of Johnson and Johnson Corp. betrayed 93,000 persons between 30 – 55 years old and older, with the promise of a new and active life, pain free with full modality of their hip, when in reality DePuy had full knowledge these “ASR devices” were defectively designed. Statistics showed that 1 out of 8 persons would need a replacement hip within five years (many within the first year) resulting in extreme pain, lengthy rehab, and a crippled hip life.

Once again, the corporate bottom line trumped the risk of disabling the consumer. By 2009, DePuy announced a profit of 5.4 BILLION dollars, and yet they continued to sell the known defective ASR devices until they “volunteered” to recall them August 24, 2010.

What is more disgusting than DePuy’s betrayal to the consumer and surgeons is the actual fact of the damage caused by these devises and the lethal harm to patients if not detected as soon as possible.

The true danger lies in the asymptomatic joint region where because the ASR titanium ball or cup chafes off its titanium flakes into the blood stream. The body’s immune system attacks the joint with extremely high levels of chromium and cobalt. These high levels of ions enter the joint and chemically produce a poison called ALVAL that kills the flesh, ligaments, bones and other tissue that cannot be rejuvenated. This metalloid reaction causes the bone to loosen through osteolysis where the immune system attempts to reabsorb the bone by cracking and wearing it down so that it can no longer hold the ASR ball at the top of your femur. The ball dislocates from the hip and causes exactly what you do not want to happen to anyone because it cannot be repaired without permanent damage.

I realize the above sounds pretty technical, but one look at the films would explain it all. It is all very ugly and you would not wish it on your worst enemy. When you add the fact it could have been avoided by a moral manufacturer, it makes you sick.

Mark S. Cornwall lives in Santa Barbara, CA. and can be reached at www.markcornwall.com, or at (805) 845-7558.

Recall of DePuy Hip Replacement Device: Know Your Rights

2010-10-21T16:52:00.000-07:00

This alert is to help those people who have been victimized, or will be victimized, by a failed hip surgery replacement implant from 2003 to the present. By letter dated Aug. 24, 2010, DePuy Orthopeadics, a subsidiary of Johnson & Johnson, recalled 93,000 defective implants on a so-called voluntary basis.

The two hip replacement devices recalled are known as the ASR Hip Recurring System and the ASR XL Acetabluor System, commonly referred to as ASR. According to a source familiar with the protocol of Santa Barbara Cottage Hospital, if you had a hip replacement surgery at Cottage Hospital any time in the past seven years, you have probably had it replaced with one or both of these DePuy devices because of the hospital’s preference among competing brands. That leaves about 1,300 potential patients at risk during the past five years.

If you haven’t already done so, you need to talk to your treating physician about how the recall of the ASR and the possibilities of its failure to work within the first five years will affect you. It could require a replacement surgery with the attenuating rehabilitation. The device is supposed to last for at least 15 years. Johnson & Johnson recalled this replacement hip system because the devices have a 12 percent to 13 percent chance of coming loose, fracturing the bone around the implant, releasing titanium metal flakes into your blood stream and causing tumors, as well as greatly increasing the possibility of infection.

WHAT TO DO

A 12 percent failure rate is astronomic in the world of implant recalls. Meanwhile, DePuy has begun a very aggressive campaign to find the recipients of the defective devices and attempt to settle any potential case the victims may have for the cost of replacement surgery. You will receive a letter from DePuy — actually, from its insurance company named Broadspire, which will attempt to have you sign a document for your authorization to receive all your medical records from anywhere, to be shared with any “service provider” contracted by DePuy. Do not sign this authorization for medical records.

The authorization will be abused and all your medical records will be shared with claims adjustors, attorneys and computer statistics, and against you in order to settle for the least amount of money possible. It will not cover the pain and suffering, e.g. the disappointment of a failed surgery, months of rehabilitation, the need for a replacement surgery, time, expense, lost wages and, in many cases, years of never-ending hip pain requiring cortisone shots every three months.

Because of the ASR never working for many patients, it has made life more miserable both after the implant surgery and before the replacement surgery by knowing you may have your hip replaced again, and start the rehab process from the beginning again. It is always more difficult to mend the second time, but the relief is worth it.

The next step is to obtain your medical records from your treating orthopedist and bring them to an ASR recall lawsuit counselor such as myself. Your case can then be confidentially analyzed and a well-planned strategy can be pursued on your behalf alone. It is not advisable to be part of a class-action lawsuit unless you have little or no injuries or cost of damages. The attorneys are the only ones who come out ahead on class actions. If your case is more serious than that, you need private legal counsel familiar with the implant recall and its fiscal ramification that will handle your case on a contingency fee basis.

What DePuy Isn’t Telling You

According to the letter you will receive from DePuy, or on its Web site, the “voluntary recall” of the ASR products came about as follows:

“Johnson & Johnson announced the recall of the DePuy ASR Hip Implant system after data from the National Joint Registry of England and Wales showed that 1 out of every 8 patients (12 percent to 13 percent) who had received the recalled devices had to undergo revision surgery within five years of receiving it. It is suppose to work for 15 years. The recall involved the ASR XL Acetabular System, a hip socket used in traditional hip replacement, and the ASR Hip Resurfacing System, a partial hip replacement that involves placing a metal cap on the ball of the femur. Only the ASR XL Acetabular System was approved for use in the U.S.

“The truth is that according to the Australian Joint Registry — the second-largest database in the world after the England and Wales National Joint Registry — issued seven reports to DePuy starting in 2007 that identified problems with the hip implant system. The ASR system was finally withdrawn from the Australian market in December 2009.”

DePuy has long known the problems caused by its ill-designed hip replacement device, yet it continued to sell it to Americans for nearly a year after being ousted from Australia. That means DePuy made billions of dollars off the risk of your suffering.

I will be attending the National Hip Replacement Summit in Chicago Oct. 21-23. I can be reached at mscornwall@aol.com or (805) 845-7558.

THE DePUY ASR HIP REPLACEMENT DEVICE: YOUR RIGHTS

2010-10-12T12:30:00.000-07:00

THE DePUY ASR HIP REPLACEMENT DEVICE RECALLED:
YOUR RIGHTS

Mark S. Cornwall, is resuming his 25 years of litigation practice in the field of personal injury solely to help those persons who have been victimized by failed hip surgery replacement devices. In August 2010, the DePuy (pronounced like Pepe “Lepeu”) Orthopedics, a subsidiary of Johnson and Johnson, recalled 93,000 defective implants, on a so called voluntary basis.

The two hip replacement devices recalled are known as the ASR Hip Recurring System and the ASR XL Acetabluor System, commonly referred to as ASR.

If you have had your hip replaced due to the ASR failing and/or have had it replaced with another device due to the failure of the ASR between 2003 to the present, please, call the Law Office of Mark S. Cornwall to understand your legal rights on pursuing your claim. Talk to your treating physician about how the recall of the ASR and the possibilities of its flaking off titanium chips into your blood stream can affect you.

Johnson and Johnson recalled this replacement hip because the devices have a 12% chance of coming loose, fracturing the bone around the implant and causing tumors, as well as metal particles into your blood stream.

A 12% failure rate is astronomic in the world of recalls. A 5% failure rate would be more than sufficient. Johnson and Johnson has admitted it is to blame, but this knowledge of failure has been known for years before now, and they DePuy has kept selling them at the expense of their patients pain, e.g. the disappointment of its failed surgery, months of rehabilitation, the need for a replacement surgery, time, expense, lost wages, and in many cases years of never ending hip pain, requiring cortisone shots, every three months that did not work. Because of the ASR never working for many patients it has made life more miserable both before and after the replacement surgery knowing you would have to have your hip replaced again, and start the rehab process from the beginning again. It is always more difficult to mend the second time, but the relief is worth it.

The Law Office of Mark S. Cornwall has a history of winning lawsuits against the biggest manufacturing and retail corporations in American: Harley Davidson, Big Five Sporting Goods, both United and KLM Airlines, and McDonalds to name a few. But they all have insurance companies and without exception they do not want to pay you a dime.

DePuy has sold more than 93,000 of these and similar products worldwide, with sales totaling more than $5.4 billion in 2009. In December of that year they stopped selling the implants in the Nation of Australia due to complaints from hip plant receivers where hip replacement is common since the average person in Australia walks the most steps per day in the world. America is last on that list. In March of 2010, the company wrote letters to all orthopedists warning doctors of the possibility of early failure of their products.

Then on August 26, 2010, they sent orthopedists an “Alert Letter” warning doctors that use of the implant could result in failure due to problems in the device itself. That is almost an admission, but it is not what they are blaming this voluntary recall on. They are blaming it on 1) the way the doctors placed the system during surgery, and 2) they claim they were taking it off the market anyway because its sales were not making money for DePuy aka Johnson & Johnson.

“Johnson & Johnson announced the recall of the DePuy ASR Hip Implant system after data from the National Joint Registry of England and Wales showed that 1 out of every 8 patients (12%-13%) who had received the recalled devices had to undergo revision surgery within five years of receiving it. It is suppose tp work for 15 years. The recall involved the ASR XL Acetabular System, a hip socket used in traditional hip replacement, and the ASR Hip Resurfacing System, a partial hip replacement that involves placing a metal cap on the ball of the femur. Only the ASR XL Acetabular System was approved for use in the US.
According to a report on the Independent, a UK media outlet, the Australian Joint Registry – the second largest database in the world after the England and Wales National Joint Registry – issued seven reports to DePuy starting in 2007 that identified problems with the hip implant system. The ASR system was finally withdrawn from the Australian market in December 2009.
Professor Stephen Graves, director of the Australian National Joint Replacement Registry, told the Independent that DePuy had behaved “irresponsibly and very badly,” putting patients needlessly at risk. “It is a complete untruth that DePuy did not have reason to withdraw the ASR before now; we have been telling them since 2007, but they allowed it to be used on thousands of people,” Graves said,” according to the Registry.

Mark S. Cornwall 1 (805)845-7558

DON’T LET YOUR ELDERS GET FLEECED!

2010-08-09T17:05:00.000-07:00

It is not found in just this column, or the Washington Post and New York Times, but also in the Los Angeles Times. The top, number one subject in estate planning today is to disperse as much information necessary to alert all baby boomers and senior citizens of their vulnerability to financial fraud. Elder abuse from financial fraud is running amuck, and is difficult to detect if you are unaware of the signs.

The problem, or at least the biggest problem, is that the persons perpetrating the fraud are those that most people believe would be the last person to do it. It is that long, or so you thought, trusted friend that always came two or three times a week for tea. Or that sweet niece that always came over and washed that old neighbor’s towels, or his daughter who came from Arizona just to help him out.

Worse, it could be that care-giver paid by Medi-Cal who is suppose to do a job, only to show up with larceny in their heart once they understand how alone and alienated some older individuals can be made from the rest of society.

According to the Los Angeles Times, crediting a newly released survey, one senior in five has been taken in some form of financial con. It is exactly that one in five (20 percent chance) whom the con men and women are looking for to take advantage. If you say, “I’m looking for a ‘reverse mortgage’ on my house,” and they answer, “I have something better for you than a reverse mortgage!” -- followed by a pitch that is an incomprehensible financial alternative and all you understand is the bottom line, which of course sounds too good to be true and you believe it, then you are in trouble. The elder citizen that enjoyed talking with the polite man’s voice might think it must be their lucky day, when in fact it is the other way around.

Even people in their fifties do not realize how much money a seventy year old senior has stashed away as a result of frugal living and conservative investments. Not everyone is a crook, but the crooks are looking for these small fortunes saved by a man who sometimes has a day of dementia, or the elderly woman who was not thinking clearly only because she had started a new medication routine.

All this led to some security regulators working for the Texas Securities Commissioner to discover that a disproportionate number of elderly fraud victims were suffering from some level of dementia. This led them to wonder if there were any red flags that may be seen on these vulnerable elders that could be identified before they got fleeced.

They joined forces with Dr. Robert Roush of Baylor College of Medicine and formed a coalition of financial and medical professionals to find a way to remedy the situation. The coalition is called the “Elder Investment Fraud and Financial Exploitation Project.”

Because a financial fleecing causes stress which causes further ailments from their financial woes, Baylor College of Medicine came up with a set of questions doctors could ask to determine if their elderly patients were suffering from “mild cognitive impairment.” It centers on the fact that approximately 33.3 percent of those over 70 become confused when dealing with numbers. The warning signs for seniors are:

• Confused over paying bills;
• A lack of confidence over making financial decisions alone;
• Confusion over others making their financial decisions;
• Making gifts they cannot afford;
• Assertions that someone is stealing money from them without any proof.

Of all these signs it is the assertion of money disappearing that seems to cause the most stress. They may get mixed up over numbers, but the thought that someone has accessed their account and money is disappearing is loathsome. They can’t eat or sleep or talk about anything else.

Once the doctors find the signs of mild cognitive impairment these tips lead to investigations and one financial planner got 99 years in prison. But the most successful way to prevent fraud on your relatives is to stay vigilant even if the care-giver doesn’t ask for it. In fact, particularly if the care-giver doesn’t ask for it.

Should You Plan for Medi-Cal?

2010-07-28T08:14:00.000-07:00

One of the biggest decisions you must make in structuring your estate plan a good five years before your perceived timing of prolonged medical care — as in three months of hospital and rehabilitation care, or long-term skilled nursing care, or the co-payment of the balance on the portion Medicare will pay when you turn 65 years old — is whether you should apply for Medi-Cal.

If you’re indigent, you need not worry. But if you plan to make yourself indigent in order to apply for Medi-Cal, then this is serious business.

Medi-Cal has a five-year “look-back’’ to make certain you didn’t give your wealth away in questionable transactions to siblings, friends, trusts or the wrong kind of irrevocable trust in order to make your estate indigent. The application form is a test of your time, diligence and bookkeeping abilities just to get your foot in the door. Any and every transaction in the past five years must be verified on both ends to make certain of its legitimacy. Then you must reapply every year in a shorter form, but usually face to face with your case worker.

If your application isn’t verified, you will be penalized by a formula based on how much money you gave away (which was not exempt) in order to get your estate down to the $2,000 minimum in liquid assets. The penalty is the amount of time you will remain ineligible before you are able to reapply for Med-Cal. It may be months or years, which means you are almost certain to be indigent by the time you are eligible — given the cost of surgeries and skilled medical care.

Why would someone plan to become indigent? The simple answer in the general case is that at 65 years old (some choose 62), you begin to draw Social Security benefits based on the amount of money and years you paid into the program. With this monthly financial stipend, you automatically can sign up for the federal Medicare health insurance benefits. If you had very poor insurance coverage, or no coverage at all, Medicare will greatly reduce the cost of your health care — but it doesn’t pay for it all. There is a long range of co-pays for which you are personally responsible to pay. But if you also have Medi-Cal, it will cover the co-pay for you.

California’s system of comprehensive medical coverage is different from any other Medicaid coverage in the other states. Unfortunately, there aren’t counselors standing in line to help the elderly understand what they should do because it is so complicated in its conflicts with many of the benefits from Medicare that you could do more harm than good in some cases. Medi-Cal is not for everyone, and it would be ill-advised to recommend it. The application takes initiative — and sometimes it’s too late.

Medicare is an offspring of the Social Security Administration and intertwines with that agency so much that if you did start receiving benefits at 62, you automatically become entitled to the health insurance program at age 65. Medicare provides some — but not all — the benefits you may need to pay for a $500-a-night stay in the hospital, particularly longer than 100 days. That’s why there is Medi-Cal.

As for Medicare, if you postpone signing up for Medicare when you’re 65, and continue to work and stay with your employer’s health-care plan, you have made your eligibility options for Medicare when you do retire much more complicated and limited. You can’t just sign up when you feel like it. There are deadlines that must be met. If you want the least hassle, apply during the seven-month enrollment period beginning three months before your birthday month and three months after — giving you seven months.

But you must be aware of what you’re getting from Medicare. It’s broken down into four parts. Part A covers hospitalization for free for those age 65 or older, before the co-pay. Part B covers doctor visits and other forms of outpatient care, but this is based on specific needs and the environment in which you live. You can be certain that it will not be sufficient to cover all of your costs. It keeps skilled nursing and home caregiver hours to an absolute minimum. After that, you either pay for it yourself, which is impossible if you have only $2,000, you have insurance to pay for it or you’re taken to a home from which your chances of returning to your own home are very slim.

Part C is an individual “Advantage” plan from Medicare that A and B don’t cover and for which the individual pays a premium. If you can work that out while being on Medi-Cal, you have accomplished more than most people can do; and Part D, etc.

Generally speaking, medical expenses for nearly all seniors in California are covered by Medicare, supplemental insurance, HMOs, veterans benefits, Medi-Cal and any combination of those. You can file for Medicare and be eligible for the benefits, even if you’re still working and even if you’re not collecting Social Security.

Medi-Cal is a combined federal and state program that pays for health care and long-term care for eligible low-income citizens and legal residents of the United States. Some people receive both Medicare and Medi-Cal; many do not.

Whatever the case for you or those you love, winding through the maze of limitations and benefits needs more than a treasure map. You need an attorney trained by the National Academy of Elder Law Attorneys, the National Elder Law Foundation or a California State Bar specialist in estate planning and probate in the Elder Law Section.

— 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. I have lived in Santa Barbara for more than 30 years and practiced law here for 25 years. My book, Estate Planning: The Heroes Way for Baby Boomers, can be purchased via my Web site, www.MarkCornwall.com; Amazon.com; or locally at Chaucer’s and Borders bookstores. To schedule an appointment, contact me at mark@babyboomerpublishing.com or 805-845-7558.

Estate Planning Preferable to the Crisis Before Dying

2010-07-21T09:45:00.001-07:00

The difference between the theory of estate planning well in advance and the reality of dealing with a mother, father, sister, brother or child dying can’t be measured in money or emotion. It’s not until you have to put that plan into effect that you begin to understand its absolute necessity.

The only thing worse is to get to those days of a sudden emergency that eventually causes a death only to find out that the estate plan isn’t valid, either because it doesn’t represent the person’s last wishes or because events have changed in the life of the trustee/testator that makes the old revocable trust or last will and testament invalid.

This not only would cause you to revoke the old revocable trust and transfer the real estate in that trust back to the original trustee, but then to create a new revocable trust or will while the trustee/testator is still alive and competent — making sure it is accomplished before the trustor/trustee dies.

This requires extraordinary haste in drawing up the legalities necessary to perform this documentary feat, which means it’s never going to be cheap — unless someone in the family is an estate planning attorney. It begins with the durable power of attorney to manage personal financial affairs meant to aid those who can’t make it to the bank.

As we have discussed, if the bank doesn’t know you, it will only provoke an argument as to what the trustor wants done. Normally the resolve can end with the bank manager who has personally heard it from the trustor’s mouth. But some banks, such as the Bank of America in one known incident, will give you only the fax number to their legal department to send the document and letter of explanation, and you don’t get called back without more diligence until weeks later.

But putting the legal documents aside, the even bigger challenge is having to deal with the social services such as Social Security, Medicare and Medi-Cal, which hopefully have been put in place, and will be if the patient is 65 years old or older.

Those first two federal agencies are a godsend when it comes to the aid of the exorbitant cost of getting your loved one the vital surgeries that must be performed immediately to save the patient’s life. There will be no three weeks to wait for Anthem Blue Shield to give the OK, presuming the patient is lucky enough to have insurance.

If the patient is in the hospital longer than 72 hours, Medicare also will help pick up a portion of the tab for 24-hour health care at the rehabilitation center. But the margin on the balances of the medical bills during this period, which can be months, are expected to be paid by the patient —or, depending on their financial status, it will have to come from your pocket.

However, there is the third resource, Medi-Cal, if the patient is indigent, meaning he doesn’t have more than $2,000 in cash or doesn’t have private insurance to pick up the “co-pay” after Medicare has paid its share of the medical cost.

Medi-Cal is California’s version of the federal Medicaid program, and it must be approached very cautiously because California’s rule and regulations as to which applicants can qualify for benefits conflicts with many of the rules regarding Social Security’s Medicare. In many cases, it will turn out that you can’t qualify for both. If you have planned ahead and do qualify for both, then you have the best insurance available.

But for many who could use it, the mere filling out of the application for medical insurance is so daunting a task, fraught with the requirement of verifying every asset regarding its cost and value, along with filling out the statement of facts by stating just the right things, that clients would rather get an ulcer over starving to death than getting one filling out the application form for Medi-Cal.

This short article is not capable of walking a reader through the complications and review system that is required every year. The best advice is to plan this insurance resource well in advance of the five-year “look-back” by the agency at the time the application is filed to determine when you would be eligible.

Other than that, keep living a healthy lifestyle of exercise and nutrition, and good luck.

Planning Pays Off When Leaving Money to Children

2010-07-14T07:15:00.001-07:00

Strangely enough, last week’s column — which reveled in the fulfillment of those who are able to reconcile their sibling rivalry before they die — nevertheless prompted a number of calls from potential clients who are unable to reconcile the rivalry with their brothers or sisters.

Each of them had a story based on alleged fraud and deceit regarding the handling of their parents’ revocable trusts.

In every case, the theme was that an older or younger sibling had somehow gained control over the disbursement of funds in the trust in an attempt to cut a brother or sister out of the percent of the assets they were apparently due under the trust. These children had not reached that epiphany of realizing the only thing that matters when you near the pearly gates are those family members and others you love and who support you. Apparently that requires laying on your death bed.

But when it comes to the sibling rivalry after the parents are gone, it doesn’t so easily come to a halt. In fact, it grows worse because the siblings left behind still believe that money is more important than loving the sister you never got along with during the past 20 years. These cases are resolved only through litigation or arbitration.

However, this type of unforeseen rivalry can be easily avoidable by putting enough thought into your revocable trust during the course of your estate planning.

As for leaving money to children, there is much to take into consideration depending on the age and temperament of the child. The older you get, the more outrageous it seems to leave a large sum of money to an 18-year-old.

It is commonly recommended that a trust be used to stagger payments, possibly at ages 23, 26 and 30. The expectation is that at 23 your son will want to buy a Porsche, at 26 he will have graduated college, and at 30 he will have settled down and knows what he wants to do in life. For others, the ages of 20, 30 and 40 sound more appropriate.

Yet some parents may want to provide for their children’s education and then leave the rest of the money to charity. This is easily accomplished through a wonderful tax-saving device known as a charitable remainder unitrust (CRUT).

A CRUT is very flexible and will allow you to — among other things — sell stocks with a very low tax basis at a very high price, and not pay any capital gains taxes on the appreciation of the stock. It works the same for highly appreciated real estate. As you will see, whether used to pay for the education of your children, or to provide a percentage of the income to you for retirement, a CRUT is a valuable tool in estate planning. (See Chapter 16 of my book for more details on CRUTs).

The normal prerequisite of a trust for children is that it protects the corpus (that amount of money in the trust) from them — thus the name “spendthrift trusts.”

Another way of helping young adults manage money, rather than keeping it from them or forcing it on them, is to allow them to withdraw money from the trust as they believe they need it. This essentially allows them to be their own trustee without the responsibility of managing the entire sum of money in the trust.

Another way to manage children’s money is to establish a family pot trust that can be distributed to each child in accordance with his or her needs, according to the trustee’s discretion or by the terms in the trust. Another way is a minor’s trust, and yet another is a custodial account — and there are more.

Therefore, as you can imagine, there are many ways to plan your child’s inheritance. Most parents are afraid a trust may be a distraction for a young person. They believe it might rob the children of their incentive to go out in the world and do well. More than one child has been lured away from college or taken up a life of drugs because the easy money was there with no conditions required before getting the money.

These concerns can be relieved by language in the trust that stops money when the child is not enrolled in college full time, fails to maintain a certain grade point average, gets arrested more than once or violates some other standard of conduct that was outlined in the trust.

Settling Sibling Rivalry

2010-07-06T07:16:00.000-07:00

If you’re not currently involved in issues involving hatred, estrangements and petty jealousies among your siblings, you may find it hard to understand how a belt buckle could turn two loving brothers or sisters into squabbling enemies for years. But you should read about this problem anyway, in hopes of avoiding ever having it happen to you.

Actually, there are no problems in estate planning unless you’re trying to do something illegal. There are only solutions.

The solution as to whether it is prudent for one sibling to be named as the durable power of attorney for a sister or brother if one of them becomes mentally or physically incompetent is the issue we are exploring here. It is the same as asking whether a sibling should be named the “successor trustee” of his or her brother’s/sister’s revocable trust. The answer hopefully can be determined before the question of mental capacity of the trustor raises its ugly head and makes things more complicated, but sometimes it takes a crisis to get beyond the pettiness of relationships.

Are siblings the best person for that powerful position?

At first glance, if the older brother was 69 years old, unmarried with no adult children and had accumulated some wealth over his lifetime, most siblings would choose their 60-year-old younger brother to take over their financial affairs, especially if the younger brother had a proven reputation of business acumen. The ideal would be that because blood runs thicker than water, there would be no better person to trust and act in his brother’s best interest. At least that is the way it would be portrayed between Wally and Beaver Cleaver when they hit 69 and 60 years old.

But just as not every mom wore a string of pearls every day like June Cleaver, not every set of brothers or sisters were as close as Wally and the Beav. In fact, most siblings have as many things to fight about as they may have inside jokes they have laughed about over and over again as they grew up in the past 40 years.

The question in the twilight of the older brother’s years — when he begins an early onslaught of dementia and starts to forget more than he remembers, and his failure to remember makes him paranoid and distrustful of everyone — is, is it wise to put the younger brother between the older brother and his money? Wouldn’t it be wise to hire an attorney whose hands are codified by a code of ethics where upon breach of his duty he would lose his license to practice law and be civilly liable for damages? The attorney is, after all, trained to be “reasonably prudent” in all business dealings with the client’s money, which means “he must do whatever a reasonably prudent person would do under the same or similar circumstances.”

My response to this requirement is that if that is all it takes, then why can’t a reasonably prudent brother with perhaps more business experience than the attorney offer the same prerequisite — even more so because he cares deeply about being successful in bringing his brother’s last days into fruition as his brother had planned? The attorney, on the other hand, although he has a fiduciary relationship to his client, will necessarily keep his lawyer/client relationship at arm’s length. This is not only because it’s easier that way, but because it keeps the attorney from facing his own mortality, whereas the brother has no other choice.

Make no mistake: Once you bring Social Security, Medi-Cal and Medicare onto the scene, everything becomes complicated and far more personal than the hundreds of rules and regulations these agencies will reveal. It takes a lot of reading and talking to experts before you may understand the system — if ever — but there is no reason a reasonably intelligent sibling could not do a better job, if it was only because they had more at stake than money in the outcome.

But this is where there is strong resistance. If, at the time of crisis, two brothers were for some reason passionately estranged and had not talked for years, people who have not experienced the fulfillment of reconciliation between their siblings have difficulty believing it is genuine. They do not understand there is nothing more important than those people who love and support you in the end, and they do come back to do so for all the right reasons.

If you are alone and dying, suddenly houses, cars, money or anything else of material worth means nothing. If you are lucky enough (or perhaps unlucky in some cases) to be thinking straight when you believed you saw the pearly gates within sight about the time you believed or even wished that you were dying, can you imagine thinking of anything other than who you really loved? You will not be thinking about belt buckles. Forgiveness will be foremost on your mind, and that comes best served when it is not you having to ask for it.

Don’t Put Yourself in Post-Death Depression

2010-06-16T08:01:00.000-07:00

Those of us who have gone through the trials and tribulations of putting together a comprehensive and professional family revocable trust know it is an emotional experience. You don’t care to dwell on the process, but rather enjoy the peace of mind that comes from having your household in order. Then comes the day that a spouse or loved one dies, and there is no one to deal with it but you.

Unfortunately, there is a series of steps enumerated under the Probate Code that must be accomplished in order for a revocable trust to remain in good standing with the Internal Revenue Service, even if you’re not in probate court. The responsibilities of the successor trustee don’t stop upon the trustor’s death and are mandated by the Probate Code — whether you’re in Probate Court or not.

A few examples of things that must be done before you can start grieving are as follows:

» There must be signed acceptance of the trust by the trustee pursuant to P.C. 15600. However, this requirement can be fulfilled by knowingly exercising powers or performing duties under the trust instrument. In other words, if you are the survivor, you must begin to follow the instructions in the original or amended revocable trust.

» The trustee has the duty to keep the beneficiaries of the trust reasonably informed. Notice must be given within 60 days to any beneficiary named in the trust agreement, including any event amending or modifying the trust as listed in P.C. 16060.5 through 16061.7, which substantially changes the terms of the trust. Notice may be served by mail.

» No beneficiary can bring an action to contest the trust more than 120 days from the date of notification by the trustee, or 60 days from the day notification was mailed to the beneficiary within the 120-day period, whichever is later. That’s why you want to notify the beneficiaries as early as possible. Notification doesn’t have to follow a specific format, but it must give reasonable information to inform them of the event that affects them.

This would be a good time for the trustee to see an attorney and/or a CPA, if you haven’t done so already. Below are some compassionate words of advice to attorneys who undertake the administration of the trusts after a deceased spouse has been laid to rest.

There is often a “disconnect” between lawyers and grieving clients. When the attorney and client should be sitting at a round table, the client often ends up staring across a large desk between him and the attorney who is advising and doing nothing more. That desk can become the attorney’s defense mechanism to keep from getting too close to the mortality he is dealing with, because there is nothing very happy about it.

“Lawyers are counselors in the bereavement transition, whether they want to be or not. Information and guidance on procedures and requirements are only part of what the client needs. Patience, availability and willingness to take time, to listen and to explain and re-explain those procedures and requirements are essential. The practitioner must avoid the common pitfall of a professional when confronting a client’s emotion, which is to ignore it. Practitioners often find it less upsetting to treat the survivor as ‘just another client’’ in order to maintain a reserve that borders on indifference. Although most practitioners are not trained psychologists, compassion and empathy are essential when assisting the survivor and the family in a post-death administration. Most individuals who practice in this area gain professional satisfaction from guiding clients from their expectations to their objectives. This purpose can be especially fulfilled in a post-death administration” — Thomas Shaffer, The Planning and Drafting of Wills and Trusts 29 (3rd edition, 1991).

In my opinion, other than obtaining the death certificate and giving a general accounting of the property and real estate to the CPA or administrating attorney, there is only one other thing a trustee must do. He or she must contact the financial institutions to have the accounts funded into the sub-trust. If this proves too exhausting because of red tape telephone answering devices, then this duty should also go to the attorney.

The grieving survivor or trustee should let the administrative attorney take care of all those needs as far as setting up trust and funding them appropriately. In that fashion, the survivors, 99 percent of whom don’t understand the process — nor want to understand — can be free to put their new life together.

Transferring Your Parent’s House Creates A Conundrum

2010-06-03T12:16:00.000-07:00

In the majority of cases where the parent transfers a house to their child during their lifetime, it creates a capital gains conundrum. The child receives an immediate benefit when receiving the house because the state of California does not reassess the value of the home for tax purposes on a parent-child transfer. (It doesn’t reassess on a child-parent transfer either.) Therefore, the child pays no increased property tax. But, if the child wants to sell the house their parents gifted to them, they are going to be hard hit by long term capital gains.

Suppose your parents bought a three bedroom house in 1956 for $10,000 and it is now worth $680,000. Those used to be very realistic numbers in southern California before the crisis, but helps illustrate the point. Your parents have been renting the house for profit during the last three years, and now decide to gift the house to you.

When they transfer the title to you, there will be no change in the cost basis of the house. (That is the amount your parents paid for the house in 1956.) Your parents “cost basis” of $10,000 carries over to you and therefore you pay no higher property tax on the property than they did. Your cost basis is now $10,000.

What happens if you want to sell the property? With a cost basis of $10,000, you would pay capital gains tax on an $670,000 gain after a sale for $680,000.

The federal capital gains tax brackets are complex and shifting, but as of 2008, the gain on property sold on or after May 6, 2003, is taxed at a rate over 15%, and said to be going to 20%.

The California state income tax brackets are the same as the state capital gains brackets. Therefore, a single person with a capital gain of over $40,000, and a married couple with a capital gain of over $80,000 will pay the highest rate of tax California has which is 9.3%.

The math on the property works out as follows:

$680,000 fair market value
$680,000 sale
- $10,000 cost basis

$670,000 gain
- 15% Fed. tax = $100,500
- 9.3% state tax = $62,310
____________
$162,810

You will be responsible for paying $162,810 in taxes if you sold the house at today’s fair market price. It takes many years of property tax to add up to that number and justify the loss of the step-up value you would receive if you inherited the house upon their death.

Therefore, one alternative to paying this $162,810 in taxes is to wait to inherit the property after your parent’s death. At that point there will be a “step up” of the cost basis to the fair market value of the house as of the date of death. The cost basis of $10,000 will step up to the sale price of $670,000.

If you sell your parents’ house immediately after their death, there would be no capital gains taxes on the sale, if the house did not appreciate in value from the date of death.

This would all seem a little callous if you actually put gift deferment and tax avoidance ahead of the death of your parents. But the beauty of estate planning is recognizing the financial reality of these basic tax consequences and making the best of them –- and not being rudely surprised.

For example, according to IRC 121, if a married couple has owned and occupied a house for two out of the last five years, they can exclude the first $500,000 of their capital gain from taxes. (It is $250,000 for a single person.) But they now apportion the amount of years you live in the house over the last five years.

In the scenario above, your parents could have sold the house they moved from three years ago and paid taxes using their IRC 121 exemption and walked away with a gain of $500,000 tax free.

And if a single homeowner was required to move into a nursing facility due to health reasons they can deduct the first $250,000 of capital gain if they lived in the house one out of the previous five years.

Unfortunately, this plan may be outdated by 2011 as it is rumored Congress is passinf a new estate plan law where the heir receives the cost basis and has to pay the capital dains anyway.

MEDICAL MARIJUANA DISPENSARIES FOR SENIORS

2010-05-26T12:04:00.000-07:00

The city’s distinguished Council Members for Santa Barbara, and the County Council of our fair county have become needlessly tangled up in its Medical Marijuana Dispensaries (MMD) decisions. There is no doubt that something had to be done about the dubious dispensaries popping up all over town, and their motley crew that ran them.

But the California State Department of Justice came out with “Guidelines For The Security and Non-Diversion of Marijuana For Medical Use” in August of 2008. Therefore reasonable minds have a very safe backup for their city ordinances regulating the distribution of medical marijuana to those for whom it was meant to help -- those that have cancer, hepatitis C, glaucoma, arthritis, migraines, chronic pain, spasticity “and any other illness marijuana provides relief.”

But first let’s do a fact check that explains how California State law got us to this point of trying to help the sick.

For those 38 percent that still believe marijuana to be the devil’s lettuce, have no fears. It is still illegal under the 1970 Federal Controlled Substance Act and the DEA makes a point of proving it whenever they feel like it. But for California law enforcement, they are regulated by what started out as Prop. 215 – The Compassionate Use Act of 1996 which decriminalized the cultivation and use of marijuana by seriously ill patients upon a doctor’s recommendation. It may be true there is no scientific proof that it is a healer of any of the above illnesses, but somehow it seems to work for some people the same way vitamins work, even though there is no scientific proof of its healing powers. It is therefore “holistic.”

In 2003 Senate Bill 420 – The Medical Marijuana Program Act (MMP) limited the amount to be decriminalized by a registered patient to 6 full size plants or 12 small plants and eight ounces of the dried bud from the plant. It also mandated the Department of Public Health to establish and maintain a program for the voluntary registration for qualified patients, and to issue medical marijuana identification cards. All of this includes the patient’s care-giver also but that is not the point.

The point is that California has taken the crime out of marijuana for registered patients. That’s it! The question still remains how are people over 50 years old, let alone 70, suppose to get the relief which is their right under the law, if the City Council cannot adopt or modify to their liking the guidelines permeated by the State’s Attorney General, Edmond G. Brown Jr. in 2008.

A certain amount of common sense would be necessary. Anyone who has read Hemingway’s “A Clean Well-Lighted Place,” would know what a dispensary should look like. The vendors would ideally be courteous and want to help you. Even a little compassion may be shown. It should be the type of professional ambiance a 70 year old woman, or her care-giver, felt good walking in and better walking out. There should not be 100 kinds of bongs and various smoking apparatus. If the dispensary wants to sell something else let it be books on health or literature, not free advertisement magazines on how to take a picture of a bud or send away for cannabis seeds.

But here is the kicker, in 2007 the California State Board of Equalization (BOE) noticed all dispensaries that are according to the guidelines suppose to be non-profit co-ops, that they are taxing marijuana sales, as well as requiring these businesses to hold seller’s permits. This is where the rubber meets the road. Who does not want the tax revenue from marijuana transactions to go into California’s county and state coffers? The other option is the Mexican Cartel.

The longer the City Council keeps the moratorium on dispensaries going, the better it is for the illicit drug trade. But more importantly, those that truly are in need and the persons for whom the marijuana was made legal have been deprived of the compassion the law provided them.

At a recent City Council meeting May 18th only one person spoke on behalf of the ailing seniors. The focus seemed to be on the children and schools. To those people I ask, to whom do you think the cartel and every other drug dealer dispenses their drugs? It is certainly not to the ailing seniors.

Scams: A Friendly Warning to the Wise and How to Stay Out of Trouble

2010-05-23T19:50:00.000-07:00

Scams: A Friendly Warning to the Wise and
How to Stay Out of Trouble

Beware of estate planning tax scams and the con men (or women) selling them. Do not believe a word if something appears too good to be true. There is no cutting edge “pure” trust or “unincorporated organization” that allows you to not pay any taxes. Nor is there some new tax plan so clever that attorneys have not yet heard of it. “No, Virginia, there is no Santa Claus.”

The only thing more outrageous than promises of fraudulent estate planning promotions, are their appeal to hard working Americans. The con men tell you these are the same closely guarded trusts used by the Rockefellers and the Kennedy Foundation to keep their fortunes intact for generations. They claim that not only can you pay yourself in dividends which are “never subject to taxes,” but your assets held in a PURE TRUST are “beyond the reach of probate and inheritance tax laws.”

Do not believe it. There is no such thing. These scams, and what is known as a “living trust mill” where Living Trusts are churned out through seminars using pre-printed forms and no availability to a lawyer, are fairly common. The illegal ones are sometimes shut down by your local district attorney’s office, and in many cases the scammers are prosecuted and the victims must answer to the IRS.

But these professional cons come back months or years later using different colors, names, faces, brochures, and definitely different catch phrases. “Pure” trust will be changed to “constitutional” trust, and instead of using the Rockefellers, they will be friends of the “Alliance for Mature Americans.”

For your information, the statute of limitations for the IRS is three years from the date filed or from the date your taxes are due to find your mistake. That three years works both ways: if you made a mistake on your taxes you have three years to amend those tax forms, after which you live with your mistake which could prove costly if found. But there is no statute of limitations for fraud on your IRS filing. Let’s all remember Al Capone and what finally brought him down.

Finding an Attorney

Many people erroneously believe that to get the best representation you must pay the highest dollar to the largest law firm. Nothing could be further from the truth. Size has nothing to do with quality. The right hand in many large firms does not know what the left hand is doing. You pay for their expensive taste and lavish overhead by being charged $2.50 a page for a single photocopy.

In this day of modern technology, any solo practicing attorney sitting at their desk has the advantage of having a thousand law clerks at their beck and call. What was once the province of the large and prestigious law firm is now at the fingertips of any attorney who subscribes to Lexis or Westlaw, the two largest legal resources in the United States. There is no limitation on an attorney’s ability to get answers fast from these internet resources, and find the most current law to apply to a situation.

Therefore, you can hire any attorney with confidence and not feel guilty that you are settling for something less just because he or she has a solo practice with one paralegal or maybe one secretary.

Many times throughout my books and articles it has been recommended you seek the advice of a certified tax expert. In fact, it bears repeating that you will need to seek expert advice from an estate planner or certified estate planning specialist, and a tax attorney or discount valuation specialist and CPA, anytime you are attempting to use complex trusts or business entities to transfer wealth, avoid extraordinary tax consequences, or governmental regulations. Make sure your attorney has these experts on hand. They are not necessarily found in the same building.

Experts are expensive, but they are worth it. In the long run, if they could not save people like you thousands of dollars yearly, they would not have a job. There are many, many ways to save money on taxes and savings that are simply beyond the scope of any book. My own books stop with sufficient information for you to understand our death and inheritance system and know what you want out of it. But attorneys are the ones educated to do the job right, and there are harsh repercussions for them if they fail to do so.

CONFUSED? LOOK AT THE BIG PICTURE.

2010-05-23T18:41:00.000-07:00

If you think estate planning is confusing given the present lack of any federal law that explains if the estate tax has been repealed, or replaced by heirs having to pay the capital gains based on their parents’ original cost basis of their family home, then just wait for next year when the 2001 Reconciliation Act has truly come to an end. Congress has to do something. Meanwhile, think about this:

What makes it impossible to write a thorough analysis of all the twists and turns of estate planning as they apply to every state in the USA is that although a great number of people may live in community property states, their laws differ from each other as much as other states’ laws that are considered not community property states. Each state has different and complex laws. Even community property states have vast differences in the law.

For example, there are nine community property states, including California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. (In Alaska you can choose whether or not you want a community property estate.)

In Idaho, Louisiana, Texas and Wisconsin if you own separate property, the income from that property is considered community property. That is not the law in California, unless you commingle it with community property funds with your spouse. If necessary, it can always be traced back to separate property in case of a divorce. But this same property is not traceable in the case of death.

Another example is that in most community property states, if you stop living with each other, your income becomes separate property, but not in all of the states.

So, in different states, there are going to be as many different ways of determining what is, and what is not separate or community property. State laws have the final say on how your property is going to be characterized before it is distributed according to federal law, also known as the Internal Revenue Code. State laws vary and can be easily misunderstood. Local law should always be consulted for applicability to your personal situation.

A specific example of confusing state laws can be found in the concept of “quasi-community property.” This type of property evolves when you lived in a non-community property state and acquired separate property that would have been community property had you been domiciled in a community property state such as Washington, California, or Arizona when you acquired the separate property. These states will treat it as community property and it will be characterized as such in your estate plan or divorce.

Regardless of the fact that the terms remain the same, they can be interchanged and treated much differently depending on what state you moved to when you wrote your Revocable Trust, and under the laws of the state in which you come to rest.

Adding to this state law confusion, eighteen states have adopted the “Uniform Probate Code” (at least in part, and some with substantial changes). This Code is intended to allow all citizens to walk to the beat of the same drummer when entering probate court. Three community property states have adopted it, but 32 other states, such as California, have not adopted it at all. In fact, California has its own set of probate rules and procedures operating their superior courts the same as Texas and Florida have their own rules operating their higher courts.

What this means is that all the federal estate planning tools are all well defined and interpreted with some similarity in federal courts, but in all likelihood your case is never going to get there. All probate matters begin in state courts which for the most part are operating under different state laws and “Rules of Court.” These rules of concept, analysis and implementation are created by state legislators.

Breaking it down further, every county in every State has “Rules of Court” pertaining particularly to how things will be handled by the courts in their particular county. There are 58 counties in California and many of them have rules quite different from the others. The differences may not be so substantial as to change the outcome of a case, but on every court bench there sits a different personality with his or her set of personal rules and bias.

The important thing to remember is that you must always get the opinion from an attorney in your state before implementing the federal estate tools you may read about in books such as “Estate Planning: The Heroes Way for Baby Boomers. Not even Suze Orman would ever disagree with that advice, just read her disclaimers.

WHO MAKES UP THESE ODD ESTATE TAX LAWS?

2010-05-23T17:42:00.000-07:00

Gambling on your life expectancy against the IRS actuary tables, used to standardize the average age of your death, in order to get a huge tax break is the type of legal strategy that really makes you wonder who writes these tax avoidance tools into law.

Are you feeling lucky? Here is a legitimate way to put your residence into a trust, then transfer ownership to your children and earn a great tax advantage for yourself – providing you live long enough.

It is called a Qualified Personal Residence Trust (QPRT). The IRS allows you to bet that you will outlive their actuary tables. Say you are 60 years old. You put your residence (or vacation home) in an irrevocable trust naming your children as final beneficiaries after a term of your choice of years. Let’s say 15 years.

If you live long enough to see your children own your house, you not only get full ownership rights to your house for those 15 years, but a big reduction by the IRS on the gift tax, and the residence is not included in your estate tax upon your death! That means no “carryover” of the cost basis to your heirs. At the end of the 15 year term, the transaction typically results in a “leaseback” to the transferor – that’s you. These lease payments will further decrease the size of the transferor’s estate.

The term of the trust is up to you, but the older you are, and the longer the term of the trust, the bigger the IRS tax credit. In other words you get bonus points if you outlive your predetermined age of death.

If you do not outlive the 15 year term of the trust, the residence is added back into your estate and there is no added benefit. It is simply a lost opportunity and you are out the money for the formation of the trust. However, you can do it for five years also; it will just give you a lesser tax break. But however many years you choose, you must outlive the term.

The QPRT is actually a good deal, but it has to be done for the right reasons. There are many reasons to gift your assets to your heirs, but tax reduction should not be the main one. Too many things can go wrong between the gifting and the afterlife. Once you gift an interest in your home or other property to your children under a QPRT it cannot be undone.

To illustrate such a gift gone awry here is a true scenario. When I became an attorney in 1982 I went to work in an office downtown where there was a much older and respected attorney. Let’s call him Bill. Bill always did his own taxes. He presented himself as having the expertise of a tax specialist, but while I doubt he was a certified specialist, he certainly had the experience.

He was an intimidating attorney and he worked constantly changing various aspects of his large estate plan. His family included two daughters by a previous marriage, and his very lovely, active and friendly wife. He was a multi-millionaire, and as part of the estate plan, he transferred ownership interest in several of his properties to his daughters while he was still alive, with the remainder to go to them after he was gone. Unfortunately, they did not want to wait for their inheritance.

Whatever their interest may have been, and whether it was a QPRT or not, makes no difference. The point is, because they had an ownership interest in the properties, they had the right to sue their father on whatever creative breach or tort an attorney could dream up regarding an interference with their prospective business advantage of their interest gifted to them by their father.

That is exactly what they did, despite the lack of legal credence. As a result, Richard was in litigation against his two daughters for the next two years. His heart was finally broken enough to give in to the emotional stress. He signed over his remaining interest in the properties to his daughters, and they never spoke again for the rest of his life.

That being said, the QPRT is actually a gift from the IRS. Of course your gift deduction would be greatly reduced if you chose a term of years rather then challenge the actuary tables, but that is not the actual advantage of the tax tool for normal Baby Boomers. In fact, the law is not for “normal” Baby Boomers; or is it? The question is, what kind of creative mind was able to get the QPRT into the IRS Code?

CONFUSED? LOOK AT THE BIG PICTURE

2010-05-19T12:36:00.000-07:00

If you think estate planning is confusing given the present lack of any federal law that explains if the estate tax has been repealed, or replaced by heirs having to pay the capital gains based on their parents’ original cost basis of their family home, then just wait for next year when the 2001 Reconciliation Act has truly come to an end. Congress has to do something. Meanwhile, think about this:

What makes it impossible to write a thorough analysis of all the twists and turns of estate planning as they apply to every state in the USA is that although a great number of people may live in community property states, their laws differ from each other as much as other states’ laws that are considered not community property states. Each state has different and complex laws. Even community property states have vast differences in the law.

For example, there are nine community property states, including California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. (In Alaska you can choose whether or not you want a community property estate.)

In Idaho, Louisiana, Texas and Wisconsin if you own separate property, the income from that property is considered community property. That is not the law in California, unless you commingle it with community property funds with your spouse. If necessary, it can always be traced back to separate property in case of a divorce. But this same property is not traceable in the case of death.

Another example is that in most community property states, if you stop living with each other, your income becomes separate property, but not in all of the states.

So, in different states, there are going to be as many different ways of determining what is, and what is not separate or community property. State laws have the final say on how your property is going to be characterized before it is distributed according to federal law, also known as the Internal Revenue Code. State laws vary and can be easily misunderstood. Local law should always be consulted for applicability to your personal situation.

A specific example of confusing state laws is can be found in the concept of “quasi-community property.” This type of property evolves when you lived in a non-community property state and acquired separate property that would have been community property had you been domiciled in a community property state such as Washington, California, or Arizona when you acquired the separate property. These states will treat it as community property and it will be characterized as such in your estate plan or divorce.

Regardless of the fact that the terms remain the same, they can be interchanged and treated much differently depending on what state you moved to when you wrote your Revocable Trust, and under the laws of the state in which you come to rest.

Adding to this state law confusion, eighteen states have adopted the “Uniform Probate Code” (at least in part, and some with substantial changes). This Code is intended to allow all citizens to walk to the beat of the same drummer when entering probate court. Three community property states have adopted it, but 32 other states, such as California, have not adopted it at all. In fact, California has its own set of probate rules and procedures operating their superior courts the same as Texas and Florida have their own rules operating their higher courts.

What this means is that all the federal estate planning tools are all well defined and interpreted with some similarity in federal courts, but in all likelihood your case is never going to get there. All probate matters begin in state courts which for the most part are operating under different state laws and “Rules of Court.” These rules of concept, analysis and implementation are created by state legislators.

Breaking it down further, every county in every State has “Rules of Court” pertaining particularly to how things will be handled by the courts in their particular county. There are 58 counties in California and many of them have rules quite different from the others. The differences may not be so substantial as to change the outcome of a case, but on every court bench there sits a different personality with his or her set of personal rules and bias.

The important thing to remember is that you must always get the opinion from an attorney in your state before implementing the federal estate tools you may read about in books such as “Estate Planning: The Heroes Way for Baby Boomers. Not even Suze Orman would ever disagree with that advice, just read her disclaimers.

CINCO DE MAYO: THE BATTLE TO END CONFUSION

2010-05-05T16:29:00.000-07:00

CINCO DE MAYO: THE BATTLE AGAINST CONFUSION

In the practice of estate planning, whether it concerns building your estate in these volatile financial times, to estate distribution by guessing if Congress is repealing the estate tax for 2010, to whether real property will be passed on to your children next year by them inheriting their parent’s cost basis on the property, then being taxed on the capital gains valued between when it was originally purchased until the time of sale. Mutual funds, reverse mortgages, annuities, refinancing, government bailouts and every other aspect of estate planning seems to be summed up in one word: confusing.

It is time to clear the air and although I have no laws edged in stone to support it, it is time to use common sense to predict what is going to happen this year. First, time enough has elapsed to confidently say there will be no estate tax for all those dying in the year 2010. Although it is possible Congress could attempt to pass a new estate tax law prior to September 1, 2010, the last date possible to pass a retroactive estate tax beginning January 1, 2010, it isn’t going to happen. That is the last thing on their mind this election year, for so many reasons they do not even have anything in the hopper.

There is a good and a bad side of this lack of Congressional inaction. The good side, as one estate attorney mentioned, his client passed away in mid-January with an $18 million estate. This entire $18 million will pass to his heirs tax free, which in prior years would have cost the heirs $9 million dollars. Congratulations if you are in that extremely small sector of America.

The down side, according to the IRS actuary tables upon which they rely for determining the duration of the average life, the chances of your rich grandpa passing away in 2010 is minimal. (Or maybe that’s the good side.) If you are 73 years old, the probability of your living well into the next year is 96.85 per cent. If you are 80 the probability for living one more year is 93.85 per cent, and if you are 90 years old, don’t worry about it, the probability of living another year is 84.91 per cent.

Secondly, according to the Time’s magazine I saw in Dr. Woolf’s dental office, all you have to do is read it and it will tell you about the remarkable economic recovery that America has undergone. Unfortunately, this is where you have to ask yourself, “What has the economic recovery done for me? The wiser you are, the least susceptible you will be to believing the enormous opportunity that many conmen and women are taking advantage of in this fast talking age of confusion with incredible offerings in annuities such as those that cannot possibly make you less than 6 per cent interest per year for the rest of your life. In fact, it can only go higher, never downward.

Senior citizens are those most prone to become involved in scams and Ponzi schemes. That is certainly not to say there are not ethical and extremely honest people in every facet of financial advice, but do your home work. Stop and think of Bernie Madoff, Goldman Sachs, AIG, and all the other names you thought you could trust, or read about in the news on a daily basis. They are cropping up even in your little town. To make it easy, if you are 65 years old or older, and you feel yourself being pressured into a state of urgency by having to respond by a date certain or pay for another expensive product, and that product is “deferred variable annuities,” just run away. Always get a second opinion.

Even attorneys are not immune to cheats and frauds on the internet. One recent story told in the Lawyer Magazine involved an internet scam originating in Japan and targeting attorneys in the sector of divorce settlements. A lady from Japan asks a lawyer for help in obtaining the rest of a large settlement and discusses the possibility of a large advance. If the attorney agrees he receives a very authentic looking check for a large amount and is asked to cash the check for legal fees and return the remainder to the client, usually by depositing the check in a foreign account.

Don’t be confused. It can happen to you! Now have a nice Cinco de Mayo.

— 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 there 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; www.Amazon.com; or Borders bookstores. To schedule an appointment, contact him at mark@babyboomerpublishing.com.

Things More Important Than Money

2010-04-28T08:16:00.000-07:00

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

2010-04-22T21:01:00.000-07:00

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

2010-04-14T17:22:00.001-07:00

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

2010-04-05T17:15:00.000-07:00

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.

THE NEED FOR A FAMILY TRIAGE

2010-03-29T17:18:00.001-07:00

THE NEED FOR A FAMILY TRIAGE

One of my best friend’s mother had a stroke over the weekend. She is 84 years old and all nine of her children came to visit her bedside in the hospital, coming from across the country from Alaska to New York. The surprising part of this crisis was the anger that “Mom” displayed at finding herself in this situation; anger derived from wishing her husband had not called the ambulance and had let her die. Anger because she could hear, see, and understand everything. Anger because she could not talk, write, read or control her muscles.

It was not as she had planned to go. However, she somehow made it clear to every member of the family, and they accepted her wishes, that not a single step more be taken to prolong her life. She had a good life with her husband raising nine children and sending them all through college. The marriages, the grandchildren, the holidays and their travels she still remembers with loving regards. I was told she even remembered me and we had only met a few times many years ago.

There will, of course, be a protocol of vocational training to attempt to help her better communicate. But the issues relating to this situation go far beyond estate planning. These parents are that part of the World War II generation that began buying insurance the minute they were released from the military. The issue is not about working the Medi-Care system in your favor and still keeping what you have earned over your life, it’s not the possibilities of late steps that can be taken to rearrange your family will or trust, or create one if it’s not too late.

The only issue here in California is your Health Care Directive and your Durable Power of Attorney. These are the documents used to eliminate any misunderstanding as to who is in control to make your health care decisions such as whether you live or die. If you really want to ensure there is no misunderstanding use the Health Care Directive form issued by the hospital in which you will most likely be cared for, such as Cottage Hospital in Santa Barbara. Doctors, nurses and administrators are much more comfortable with their own hospital’s form created by the California Association of Hospitals, then any priced document you may present from the work of your personal attorney. Although you should still seek their advice on filling it out.

Here is the caveat, this must be done before the stroke or illness befalls you, not afterwards because you or your spouse may not be competent to enter into such a contract.

But as for my friend’s mother, a debilitating stroke such as hers is never going to come when everyone’s prepared. There is never a time to be prepared to see you mother go from a lively, intelligent, and happy Grandma to a fate worse than death. What would it be like to be dead on the outside but alive on the inside? How long can that go on? What is it like to want to scream and not have the required motor skills to do so?

Whenever there is a major calamity such as Hurricane Katrina or the tsunami in Haiti there is a federal team of emergency paramedics out of Washington D.C. that attempts to be first on the scene anyplace in the world. I know a young man who is on that team and regardless of what was said about response to the catastrophe caused by Katrina, this man and his team of heroes were in the Superdome within hours of the crisis. The first thing they do is set up medical centers called a “triage.”

The US Department of Defense defines "triage" as follows: "The evaluation and classification of casualties for purposes of treatment and evacuation. It consists of the immediate sorting of patients according to type and seriousness of injury, and likelihood of survival, and the establishment of priority for treatment and evacuation to assure medical care of the greatest benefit to the largest number

In other words, this young man, not yet in his thirties, in a matter of minutes, if not seconds, takes vital signs of the wounded, evaluates their likelihood of survival against the needs of a thousand others that may live or die. Given this necessity to assure medical care of the greatest benefit to the largest number makes “death panels,” of which there are none under the new health plan, sound rather civil.

At any rate, my friend’s family spent the weekend working on this issue, and upon Mom’s own request, the decision was no more life enhancement treatment. Perhaps she felt someone else would get greater benefit.

2010 Reconciliation Act

2010-03-22T15:03:00.000-07:00

“THIS IS WHAT CHANGE LOOKS LIKE.”
President Obama

If this is what change looks like, I must admit it is not very charming. For all of you that may have had your weapons primed, your epithets at the ready, and your cross hairs focused on killing any kind of bill that changed health care, forget about it. The 2010 Reconciliation Act has passed.

I have been registered as an Independent since college because there was nothing I wanted to be affiliated with that was always Democratic or always Republican. There was never a platform where all of one party was right and all the others wrong. Voting down your party’s line never made sense to me. My father was Republican and my mother was a Democrat. Every election they would cancel out each other’s vote.

The lack of bi-partisanship cooperation on both sides in making this historical legislation was shameful. The Democrats only won because there are more of them then Republicans in the House of Representatives, plus one more asset. Above all else they had the leadership of President Barrack Obama. If there is anything to be learned from this undignified procession of debates and name calling it is the qualities of a man that holds no fear for his convictions.

The full quart press he put on in and outside Washington D. C. against his dissenters earns him a place in history that very few presidents can be proud to say they won. Even though he did not get one Republican vote he put his entire presidency on the line just to hold his own party together. Yes, he compromised, but that is how things change. If you want to see what change looks like, look at President Obama.

If you want to know how the 2010 Reconciliation Act affects you is a lot more difficult to discern. The problem is you can’t answer the question because you have no knowledge of how whatever has been bestowed upon us will be implemented. We know it mandates another huge government administrative agency and that is never good.

We are told the immediate effects are that children cannot be denied insurance due to preexisting conditions, and we can keep our older children on the family plan until they are 26 years old. That must be helpful to a certain percent of the population. But that’s no trillion dollars worth. And how 30,000,000 more Americans are going to become insured over the next ten years begins to boggle the mind – particularly when they say this is legislation drafted to include more of the middle class. Just how far down does the middle class go?

The most important part of the Bill affecting my life is the right to purchase new insurance at a reasonable price even though you have a previous condition. This otherwise means not being able to purchase insurance if you have been to a doctor in the last ten years as a result of atria fibrillation, or fluttering heartbeat. Never mind if you have climbed 100 mountains over 16,000 feet since then. You may presently still be uninsurable.

That is all suppose to change, but not until the year 2014. That means Anthem Blue Cross and Blue Shield can still more than double my monthly premium from $778.00 to $1584 every month for one reason: A week ago I was 59 years old and the next day I was 60 years old. I mean this very sincerely when I say one day’s difference is not worth almost ten thousand dollars a year for insurance.

But they are allowing it to go on for four more years! I understand there were eight lobbyists for every House Representative voting but Obama stated after it passed, “This reform just gave you more control by reigning in the worst excesses and abuses of the insurance industry.” It’s hard to understand why they would make us wait four more years unless this is not considered one of the worst excesses. Perhaps Obama should have made more than the 92 personal calls they report to rally the Representatives.

I am happy the Bill passed because I have sued insurance companies to get people their proper due for twenty-five years and insurance companies have been abusing as much as they can during that period. At least this Bill recognizes some of those abuses and can be called a start. All it can do is get better.

Mark S. Cornwall, 3/22/2010

Estate Planning: The Heroes Way for Baby Boomers

2010-03-22T15:01:00.000-07:00

Estate Planning: The Heroes Way for Baby Boomers