Estate Planning Practice Blog

Whatever Your Wish: Estate Planning is the Answer.

I get questions all the time. Questions where the answer is really let's develop an estate plan.

Think of estate planning as putting down your wishes and wants on paper in a legally enforceable manner so that your loved ones get what you want them to get. And as a bonus, they also know what to do after you pass away.

The question I got today was this:

I have five children. One child currently lives with me. He is an adult now though. I want him to have the house so long as he is alive and when he dies I want the house to be divided among all of my children in equal shares. How do I do this?

First, set up an estate plan. A Living Trust would work well in this situation

Your Living Trust could contain a provision to give the child a life estate in the home so that he can live in the home so long as he lives. Upon his death, the life estate ends and the home then is divided into as many equal shares as are necessary for one share for your all of your children.

Second, realize that having nothing in place will mean that the state will decide what to do.

Probate Tidbit No. 5 -- Unpaid Bills and Debts of a Decedent.

Tidbit No. 5
In Probate Tidbit No. 2 posted recently, we discussed briefly Creditor's Claims in probate.

But what happens if the person who died left bills or incurred bills as a result of dying. Medical bills, unpaid credit card bills, the last gas bill, the you-name-it bill... are you responsible for paying these bills?

Generally, if you are not the surviving spouse, you are not responsible for paying the bills of someone who has passed away. A surviving spouse may be responsible for the bill as California is a community property state and that includes debts incurred during marriage.

If, however, you signed a guarantee, promise or any other contract that obligates you to pay -- of course you are on the hook for those bills.

Getting back to the substance of the post, if your loved one's estate is insolvent, contains no cash, has no assets that can be sold (car, house, etc.) and there are outstanding bills... you are not responsible for those bills personally.

Do not offer to pay a bill that is not yours.

If probate is opened for your loved one's estate, these Creditors (aka the folks demanding payment) should get notice through the probate proceeding and can file a claim against the estate to get paid. Hence, the Creditors Claim process as already discussed and relinked here.

What happens if the bill doesn't get paid? To put it bluntly, it's the Creditor's problem and will be written off as unpaid/uncollected. Do not interpret this as meaning it is ok to run up a shopping spree and then die broke. That just raises the interest rates and cost of goods sold for the rest of us.

It goes without saying that if you are unsure about a bill or other debt belonging to someone who has died, please consult with an attorney who handles probate as a routine part of his or her practice to determine how it should be handled legally.

Done With Taxes? What's Next?

If you have already filed your 2006 tax returns, you might want to tackle estate planning next before putting away your financial records and thoughts for the year.

When you are in the middle of tax season and reviewing your financial records, it is always good idea to review your estate planning documents to see if they need to be changed, revised, restated or handled in some way.

Estate planning is not a static activity though a good lawyer will draft documents that are robust and carry out your wishes. But laws change. Your wishes change. And your family dynamic/structure changes.

To summarize, tax season may be over, but it is a good time to revisit your estate planning goals and see if you need to make some changes. I am pretty certain that your estate planning attorney will be happy to hear from you!

L.A. Times Money Make-Over From Our Guest Blogger.

From time to time, Delia Fernandez will author a guest post on our blog. [Disclosure:  There is no express or implied relationship or financial ties between Delia's practice and Tredway, Lumsdaine & Doyle, LLP.] In today's L.A. Time's Money Makeover, Delia is the featured financial planner.

Overspending on a six-digit income
'Frivolous' buying and generous giving put the Newlands in serious debt. Now, it's penny-pinching time.

By Kelly Barron
Special to The Times

April 15, 2007

Helen and Ray Newland don't look like big spenders. The Brea couple lives in a modest, 1,800-square-foot home built in the 1950s. Helen drives a dusty, decade-old minivan, and Ray's Hawaiian shirts have seen better days. Their two children get hand-me-down clothes from the neighbors.

Click here to read the complete article.

Probate Tidbit No. 4 -- Executors, Administrators & Personal Representatives!

Tidbit No. 4
These terms are generally interchangeable, but there are differences:

Executor
Administrator
Personal Representative

First, an Executor is someone who is in charge of someone's estate who has been named or nominated in a Will.  An Executor is first nominated and then appointed by the court to act on behalf of an estate. When an Executor is appointed, the court will issue Letters Testamentary.

Second, an Administrator is someone who is in charge of someone's estate where there is no Will.  An Administrator is first nominated in a petition for probate and then appointed by the court to act on behalf of an estate. When an Administrator is appointed, the court will issue Letters of Administration.

Once Letters have issued, the Executor or Administrator can officially act on behalf of the estate.

Third, a Personal Representative is either the Executor or Administrator of someone's estate. It is a catchall term that refers to both.

I know this is a very simple way to explain these terms and there are more legal ramifications than explained here, but if you understand these differences you are off to a good start.

As always, it is a good idea to consult with an attorney when handling someone's estate. You never want actions that you take today to affect you years later.

Probate Tidbit No. 3 -- Request for Special Notice.

Tidbit No. 3
Has a probate been opened involving a relative or other loved one? If you are not a natural heir or named beneficiary for this person and you wish to receive notices of all of the goings on in the probate proceedings, you can file a Request for Special Notice.

Generally, if you are already named in the Petition for Probate on the last page you may automatically receive all notices, pleadings and other documents involved in the probate proceeding. In this case, filing a Request for Special Notice may be redundant, but it puts the court on notice that you want to monitor the probate proceeding.

You can also have an attorney represent you as a natural heir or beneficiary during a probate proceeding as well to protect your interest. In this case, the attorney may file a Request for Special Notice so that they also get the same notices, pleadings and other documents involved in the probate.

To file a Request for Special Notice, you will need to use this form and follow the directions for filing and service.

For more information, please consult with an attorney who handles probate matters.

Probate Tidbit No. 2 -- Creditor's Claims.

Tidbit No. 2
Does someone who died recently owe you money? If  so and probate for that person's estate has been opened, you can file a Creditor's Claim against the estate.  But you have a short timeframe in which to do so. (You can also make a claim when there is no probate estate, but there exists a trust -- however, we are not discussing trusts in this post.)

Generally, if you are sent a Notice of Administration because you are a known creditor, you have 60 days to file a Creditor's Claim.  If you are not sent this Notice of Administration then you must file your Creditor's Claim within 4 months after the Letters Testamentary or Letters of Administration were issued to the personal representative of the estate.

Your claim must be mailed to the personal representative, mailed to his or her attorney and filed with the court to be considered timely processed. The personal representative will either approve or reject your claim. If your claim is approved, you will get your money back. If your claim is rejected, you can make an appeal.

This is why a probate estate must remain open for at least 4 months from the date the Letters issue. This is the time period proscribed by law for any creditors to make their claim against the estate. So, we can also safely conclude that a regular probate proceeding in California is never quicker than 4 months.

To get started on Creditor's Claims, you will need to complete this form.

For more information about this process, please consult with an attorney that handles probate matters.

The SEC Loses and You Win.

From time to time, Delia Fernandez will author a guest post on our blog. [Disclosure:  There is no express or implied relationship or financial ties between Delia's practice and Tredway, Lumsdaine & Doyle, LLP.] You will see her guest posts from time to time under the aptly named category "Financial Advisories By Delia." Enjoy her wisdom.

Or How the Investment Industry Struggles with the F Word

 A ruling that allowed stock brokers to call themselves investment advisors without being required to act in their clients’ best interests as fiduciaries when giving investment advice has been overturned, giving a big win to all consumers.

 This was a bizarre exception to an important law. Under the Investment Advisors Act of 1940, all investment advisors are fiduciaries. That simply means that we’re required to act in our clients’ best interests when giving investment advice. So if a client consults an advisor and the best thing for them to do is pay off their credit cards and build up a savings account for emergencies, that’s what an advisor is obligated under law to tell them.

 That means that advisors are not allowed to sell you an investment that might enrich the advisor (and yes, which technically might be suitable for your age and financial circumstances, which is what you might get from a broker), but which isn’t in your best interest. I have to believe it’s what many consumers think they have working for them when they sign up for an investment account.

 Unfortunately, up until Friday morning, that was not the case. The brokerage industry managed to carve out an exemption for itself under the law, claiming that aspects of their business weren’t within the intent of the Act, so they didn’t have to register as advisors or abide by the law and the fiduciary standard. 

They just got to call themselves investment advisors to their clients, which to a lot of us in the industry was a huge injustice to the investing public. 

Like a lot of legal issues, this one turned on a technicality. Brokers and dealers of securities are exempt from registering under the Act if, in fact, the investment advice they give is “solely incidental” to their work as a broker/dealer, which is buying and selling securities. 

However, many broker/dealers are claiming to be investment advisors in full-page ads and are also being paid for that investment advice, in the form of regular fees. That would seem to call for them to register as the law is written, but the SEC had said that they were exempt due to a section of the law that says the SEC can exclude others “not within the intent of [this paragraph].” This exemption was commonly referred to in the industry as the “Merrill Lynch Rule” and many broker/dealers took advantage of it and didn’t register as advisory firms. Instead, they had to warn clients in their contracts and agreements that they were not required to act in the clients’ best interests, so the client was duly warned. 

But the court ruled against the SEC, saying that the catch-all phrase describing others not within the intent of the law was for newcomers not foreseen at the time of the writing of the law in 1940, and that broker/dealers had clearly been identified in the Act when it was written and therefore had been already addressed.

The heroes of this story include the Financial Planning Association, which is the entity that sued the SEC in 2004 and that just won the suit on Friday. Other heroes include T.D. Ameritrade, which is the one brokerage firm that spoke out against the SEC decision and supported the FPA in its suit. 

We don’t know what will happen next. It’s possible that the SEC will appeal the decision, which we hope they won’t. Or it could be that those broker/dealers who want to continue to call themselves advisors will step up to the fiduciary standard and register under the Investment Advisors Act. 

In any case, I think consumers have been well served by this decision, and we all should celebrate. And I hope you’ll become better informed about the people who want to give you investment advice, and whether they consider themselves fiduciaries. 

Do keep in mind that there is a professional association of advisors who are fiercely proud of their fiduciary standing, and that’s the National Association of Personal Financial Advisors, or NAPFA. You can find out more about this organization of fee-only planners and fiduciaries, and find a fee-only planner in your area, by contacting www.napfa.org. To learn more about the importance of working with a professional fiduciary, go to here. 

The ruling of the U.S. Court of Appeals for the District of Columbia Circuit and the legal briefs filed in the case can be reviewed online.

You can also view the FPA’s statement to the SEC.

Delia Fernandez, MBA, CFP®
Fernandez Financial Advisory, LLC
delia@fernandezllc.com
562-594-4454

Probate Tidbit No. 1 -- Cost of Opening Probate.

During the month of April, I will be posting about probate in California to educate the blogosphere on how probate works in California in easy to understand tidbits and commentary.

Tidbit No. 1
Probate is expensive.

The filing fee for opening a probate estate in California calculated based on the value of the estate. If you don't know the value of the estate, you will be asked to pay up when the estate is in a position to close. The minimum filing fee amount to open a probate estate is $320.00.  Under no circumstances is $320.00 considered chump change when someone has passed away and a probate estate needs to be opened. Somebody's checkbook gets opened to pay for the filing fee.

The next cost incurred is the cost of publishing the required legal notice in the newspaper. This averages $500.00.

Next, there are fees for the court appointed probate referee to appraise the estate assets.

Then there are costs of obtaining a probate bond if one is necessary.

Lastly, attorney fees are high.

So, let me reiterate, probate is expensive.