Estate Planning Practice Blog

Now I Know Why Attorneys Get a Bad Rap.

I met with a potential client today who wanted me to review her existing estate plan. She had a pretty complicated distribution requests and wishes for her family.  She wanted to her existing attorney to prepare an amendment to her Living Trust to reflect her change of wishes and nomination of successor trustee.  He pretty much refused. She's a well-kept younger lady so capacity is not at issue here.

She came to me because she was thinking about changing attorneys. She said he was rude and not very responsive to her requests. She also wanted to retrieve the original copies of her documents and he refused to turn them over.

If you are not happy with your estate planning attorney, you can change at anytime. You are not obligated to work with the same attorney if you are not happy with the services being provided. Some conduct by attorneys are considered sanctionable by the California State Bar. If you have a gripe, consider contacting the State Bar for assistance.

Her words after leaving my office was that I was a breath of fresh air. I'm shocked actually to find that other estate planning attorneys are not kind and careful about their perception of customer service. It is, after all, a customer service business. Clients should be happy with their representation.

Of course, some clients, and you may be one, are considered high maintenance and become a thorn in the attorney's practice due to unreasonable demands. That's rarely an excuse for poor customer service though.  Gotta handle it with a smile. No need for cranky attorneys.

Reverse Mortgages.

Here is a lengthy, but very clear  introduction on what reverse mortgages are as explained by Byron Warnken, Esq.  at Reverse Mortgage Page. A few of my clients are getting reverse mortgages. Be sure that if you have a reverse mortgage that your home is back into your Living Trust once the reverse mortgage is funded.

First, what a reverse mortgage is NOT:

• A reverse mortgage is not “a way for the bank to get your house”
• It is not a traditional home equity loan
• It is not based on income or credit levels
• It is not available to homeowners under the age of 62
• It is not free money
• It is not a cure-all
• It is not a decision to be taken lightly

What a reverse mortgage is: a good tool for financial planning and flexibility in the golden years.  There are only a very few requirements for eligibility.  The borrower must own and live in the home as a primary residence and be 62 years of age or older.  If husband and wife are both on the title, both must be over the age of 62.   

In addition, the home itself must be of a type that qualifies for the reverse mortgage program.  The vast majority of single family homes qualify, as do most condominiums, town homes, 2-4 unit owner-occupied dwellings and manufactured homes.  Your income and credit levels, however, do NOT matter.

To go through the process of getting a reverse mortgage you will need to speak with a reverse mortgage originator or provider.  This person will guide you through the preliminary steps, including counseling, home appraisals, inspections, and choice of loan specifics.  It is very important to feel comfortable with your lender.  Feel free to speak with as many people as you need in order to gain information and feel comfortable.  Click here for reverse mortgage lenders. 

There are a number of options for how to “structure” the money received.

1. Receive a one time lump sum.
2. Receive the money monthly.
3. Receive a credit line that provides flexibility.
4. Use a combination of the above methods.

Once you receive the money, there are virtually no restrictions on the way in which it can be used. But you must repay existing debt, including the existing mortgage.

You can:

• Make Home Improvements
• Finance Regular Living Expenses
• Ease Healthcare Costs
• Take a Trip to Somewhere You’ve Always Wanted to Go
• Give Gifts to Your Family and Friends

It almost seems too good to be true.  There are, however, as with everything these days, costs involved.  There is an origination fee, closing costs, a servicing fee, mortgage insurance, and interest.  These costs come from the proceeds of the loan.  You pay very little directly out of your pocket. 

You should also know that you cannot lose your home at any time during the life of the loan for failure to make payments.  THERE ARE NO PAYMENTS TO MAKE.  The loan does not come due until you permanently leave the home or the last borrower dies.  The home must be kept up to reasonable standards, it must be insured, and the property taxes must be paid. 

Default risk is one of the ways in which a reverse mortgage differs from a traditional mortgage or home equity loan.  With those traditional products there is a risk of default and therefore a chance you could lose your home.  On the other hand, there are no payments to make with a reverse mortgage.  Therefore, as long as the property is kept to a reasonable standard, you will always have somewhere to live.

In addition, you can never owe more than the value of your home.  Even if you have been paid more than your home is worth, you can only owe the value of your home.  When the loan comes due, you or your heirs can either pay off the loan with existing funds or sell the house in order to satisfy the loan.  Excess proceeds from the sale go to your or your estate.

Buying Property Together.

I met a very astute businesswoman not too long ago. She impressed me with her understanding of financial matters more than most other financial planners I know. Her name is Delia Fernandez, MBA, PFP. She is a Registered Investment Advisor and Financial Planner. She has her own practice called Fernandez Financial Advisory, The Fee-Only® Advantage. You can reach her at this email address or by calling 562-594-4454. I have invited Delia to guest post on my blog about financial matters. [Disclosure:  There is no relationship or financial ties between her practice and mine.] You will see her guest posts from time to time under the aptly named category "Financial Advisories By Delia." Enjoy her wisdom.

Delia recently wrote to the Wall Street Journal about this subject of this  post and it was published last week.

More and more people are buying property together. Such arrangements can help make a real estate purchase more affordable, but it can also cause problems if someone’s life changes and the remaining owner or owners get stuck with the mortgage.

Unfortunately, most people who enter into such arrangements do so with surprising casualness, and without discussing finances in detail or having any written, legal agreement. And when you think that this is no doubt the largest investment of their lives, it's very surprising and frightening.

So here are the steps I recommend my clients take before making such a purchase:

1. Sit down with your prospective real estate partners and discuss the basics: what's the proportion of ownership? How does that translate into the down payment and the mortgage and other expenses? How much should each person also contribute to an account to maintain the property? By the way, this is the time for candid financial disclosures -- what each partner earns, what their credit score is, what their other debt is. (I can't believe how many couples buy a house together and don't share this information).

2. What if something goes wrong and one or more partners can't pay his or her share? If they become disabled, will they have disability insurance to help cover the cost? Can the other partners pitch in and then will the other partner owe them the difference?

3. And what if someone wants to sell or dies? Do the other partners get the first right to buy out the other partner? And if so, how will they afford it?

4. Whatever you all decide, get it in writing. I recommend they go to an attorney and draw up a buy/sell agreement.

Step 4 is the one that most younger people resist as overkill, but that my older clients often realize is simply prudent (they've often been through divorces and other breakups). I try to get them to see it as an agreement to go into business together. And like any big decision of that type, before you get into it, you should figure out what it's going to take to get out.

Delia Fernandez, MBA, PFP

Fractions in Wills.

For the most part, your Will or Living Trust can have any sort of distribution method you prefer for your beneficiaries. Your estate can be divided into equal shares, unequal shares, percentages, fractions, dollar amounts and by item.

The most common approach is to divide your estate equally among your children. Regardless of your approach, the main thing to be concerned with is that it is clear what your intention is after you are no longer around to explain what you meant.

Stan Rule, an excellent Trusts and Estates attorney in British Columbia, has a neat blog worth reading. He wrote about such an odd case he came across about fractions, sons and daughters. Read his post to see what I mean.

Be Sure You Trust Your Trustee.

Every Living Trust needs a successor trustee to continue to manage the assets in there when you pass away.

If you have many kids, say more than two, consider not naming any of your children as successor trustees. Name a trusted financial advisor, name a life-long friend, name another relative or name a corporate trustee to manage the trust to ensure that your wishes will be carried out.

Trusts contests are rarer than Will contests. I think it is mostly because Living Trusts are much more private and harder to get ahold of. Wills are public documents once probate is opened. So anyone can see your Will at that point. But a Living Trust and the fact it exists can be harder for people to see/find. Also, people think that a Living Trust cannot be contested. It can be, but there are laws to follow.

Anyway, I was reviewing a Living Trust for a potential contest this morning. It was quite amazing as the person who passed away had 9 children. The person died over 10 years ago leaving two homes. The person named a daughter to act as successor trustee. Not an iota has been distributed to any of the 9 children or other beneficiaries named in the Living Trust since the person died. The two homes are still in the trust, but the successor trustee was using the homes for other purposes. After a little research, I also noted that the "attorney" who prepared the trust and was supposedly assisting the successor trustee with routine trust administration was, in fact, disbarred. Meaning he's not an attorney licensed to practice law in California.

Nice mess.

Your lesson: if you have many kids, name someone other than your kids to act as successor trustee. If you are at loss at who to nominate, open the dialogue with your attorney or other trusted professional.

Identifying The Client.

It is important to remind readers who the client is when it comes to estate planning. The client is not the person who finds me, hears about me, emails me, calls me, makes the appointments or pays me.

Simply, the client is the person for whom the estate planning documents are being prepared for. In other words, the client in estate planning situations are the testator or settlor* who will be signing the estate planning documents.

Of course, for many individuals, those who contact me, set the appointment and pay my fee are also the client for whom the documents are being prepared for.

But you would be surprised.

Many people urge others to seek the services of an estate planning attorney. Many people usher others into my office for a consultation. This happens pretty often. The most common scenario is when an adult child brings in their elderly parent for an estate planning consultation.

In situations where there are others in my office other than just the client, I remind everyone in my office who the client is. I ask my client if they consent to other individuals being in the room. I look to the client to make decisions about their estate planning. I follow my client's directions in preparing the documents.

If the client seems uneasy about the process, I ask others present to leave my office and wait in the reception area. And the client and I talk about what a busybody those in the waiting room are ... no, I am kidding ... we continue on with our conversation about what his or her wishes are with respects to their documents.

*A little legalese education: the testator is the person who is drafting the Will and the settlor is the person who is creating a Living Trust.

In The Middle Of A Real Estate Transaction?

This week I spoke to two different potential clients who had major estate planning issues and were in the process of buying or selling real estate.

While I understand that real estate transactions are time consuming and fraught with issues, it is also the best time to take care of your estate planning concerns.

If you have not set up a Living Trust and wish to do so, it is very easy to place your home in the Living Trust before you close escrow. It saves everyone time and money. It is easy to call your real estate agent or escrow company to change the vesting instructions before escrow closes and the deed is recorded to reflect that the property should be owned by your Living Trust.

Placing Your Home Into Your Living Trust.

There are many approaches to transferring your home into your Living Trust. Remember, your home is most likely to be your largest asset. If your home is not IN your Living Trust, your Living Trust is useless with respect to your home.

A Living Trust is a private document that allows for the private management of the assets placed into the Living Trust. If the assets are not placed into the Living Trust, then those appointed to manage those assets have nothing to manage. Those appointed to manage are called your successor trustees.

Anyway, it is easy to transfer your home into your Living Trust in California.

1. You prepare a grant deed transferring title of your home from you to your Living Trust. You sign it in the presence of a notary and record it with the county recorder's office where the home is located.

2. You prepare a trust transfer deed. It's the same concept as a grant deed above. You sign it in the presence of a notary and record it.

3. You prepare a quitclaim deed transferring your home into your Living Trust. You sign it in the presence of a notary. You keep it in your book or with your other estate planning documents. Upon your death, your loved ones or successor trustee locates this quitclaim deed and records it. The home is in the trust if it has not been sold or conveyed to another person in the meantime.

There are variations of the above. Say you are managing someone's trust, you find a signed and notarized grant deed, but it has not been recorded. If it was signed when the homeowner and the person who created the Living Trust was alive, you may be able to record the grant deed after his or her death. This will still allow the Living Trust to hold title to the home. There's more issues and things to be careful about with recording after someone dies, but it can be done.

My experience has been that Living Trusts that were prepared years ago in the late 70s and early 80s by attorneys used quitclaim deeds to be recorded later. Most attorneys today do not take this approach and will help you prepare a grant deed and record it for you.

Now that being said, some attorneys will not help you transfer title of your home into your Living Trust. This amazes me because it is so easy for me to do and it is usually the most important thing to do in order to make your Living Trust useful upon your death or incapacity.

Be sure to ask the estate planning attorney you are planning to hire if they will take care of the transfer for you.

Dorna Says Goodbye

Dorna's last day was last Thursday. [Our office is thankfully slower on Fridays so we didn't see a need to have her come in on Fridays.] We took her for a mini farewell lunch at a nearby Mexican restaurant. We had a great time. Being the smart cookie she is, she's learned lots this summer. Here's her last word.

I’m rounding off my last working day this summer. Joanna, the new assistant, came in yesterday. She is finishing up law school this year. With her qualifications and great personality, I know she will do an excellent job. However, I can’t help but to guard my seat with possessiveness, as I have grown so attached to this firm and my phenomenal bosses. I want to thank Michelle and Jenni for the amazing opportunity to work at Sawday and Drake this summer.

Dorna

Can I Help My Aging Parent?

Elder law as an area of law is fraught with sadness and many issues. Watching loved ones age and not be able to handle their affairs as well as they once did is very hard.

If you start to sense that your parent is not doing well or seems to have a harder time managing their life, please consider asking him or her if they have estate planning documents in place.

Estate planning documents like a Will, Living Trust, Durable Power of Attorney and Advance Health Care Directive are very important. Having these 4 documents in place can make it easier to manage someone's affairs while they are still alive, but are slowly losing their ability to manage their own life.

A Durable Power of Attorney allows someone to manage someone else's financial affairs while they are still alive.

An Advance Health Care Directive allows someone to manage someone else's health care decision making in the event they are unable to make their own decisions. It is also where you indicate wishes with respect to end of life choices, funeral wishes, primary care doctors, organ donation and autopsy.

A Will is a document to name who should get what when you pass away. You also appoint an executor to handle your affairs when you die. A Will is only effective when you die. A Will goes through probate though.

A Living Trust allows someone to privately manage the assets in the Living Trust in accordance to your wishes while you are alive but not doing well and upon your death. A Living Trust avoids probate.

Generally, having all 4 documents allows your loved ones to manage your overall well-being without court involvement.

So, be the brave one and ask your dear parent if they have their documents in place? If not, kindly suggest that they contact an estate planning attorney to get their affairs in order while they have their wits about them.