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What cases are the most hotly contested in Probate Court?  Where do you find the most drama?  The answer to that question is easy, Conservatorships!  Unfortunately, the court system is not very good at resolving family disputes.  Just ask anyone who has been through a nasty divorce or custody battle.  The litigation process is expensive, time consuming, and there are really no winners.  Often the family relationships are more strained after the process is “completed.”  This is no different in Conservatorship cases except the parties involved are usually siblings fighting over their elderly parent.  The benefit of a nasty divorce case is that if there are no children involved, the parties can go their separate ways and do not have to continue to have any sort of relationship.  Unfortunately, in Conservatorship cases the family is often torn further apart during litigation, and then has to find some way to continue to have a relationship.  The underlying source of the conflict is often money, control, old unresolved hurts and animosity.  The litigation process does little to resolve any of these issues.   So, as attorneys practicing in this area of law, why are we particularly concerned about these types of cases?  With the aging population and the lack of good estate planning being done beforehand, these cases are already and are going to become extremely prevalent.  The courts will simply become overloaded with them.

How do these cases arise?  In the typical Conservatorship case an elderly family member has begun to exhibit signs of mental defects, loss of memory, and is unable to make financial and/or medical decisions for themselves.  One or more family members want to assist the elder in paying bills, managing finances, dealing with healthcare decisions but is unable to because no formal estate planning documents are in place to allow them the legal power to do so.  This is when court action is required to formally appointment someone as Conservator of the Person and/or Estate for the elder.  This can be a very rigorous process made even more difficult if there are multiple family members who are vying to be appointed.

Financial Elder Abuse.  Unfortunately, there are many cases where a family member has been taking advantage of the elder’s lack of mental capacity and essentially stealing their assets or using them for their own benefit.  Conservatorships are often necessary in these cases to protect the elder by placing control in the hands of a Professional Fiduciary or qualified family member.

How to Identify When a Conservatorship is Appropriate.   Whenever it is suspected that someone, usually an elder or disabled person, is unable to make decisions for themselves and there is a lack of appropriate estate planning documents in place, a Conservatorship may be needed.  Warning signs that someone needs help include; bills and finances being neglected, unusually large gifts being made, the individual is susceptible to scams, and healthcare and medical needs are not being met.  Often the individual/elder is unaware that they need help.  In all of these types of cases, a concerned family member should consult with an experienced attorney to discuss the use of a Conservatorship to protect the individual.  I also recommend that they find an attorney whose goal is to help resolve any potential existing conflicts between family members rather than using litigation to make them worse.  Experience in Mediation and Collaborative approaches is very useful in resolving family conflict.

It is finally here, a permanent estate and gift tax law. Well, as permanent as a law can be given that laws can and generally do change over time. For now, estate planners can breathe a sigh of relief that at least for the foreseeable future, we have some level of predictability when it comes to the estate tax. So, this is what we know. Individual’s estates that are under $5.12 million (adjusted for inflation over time) fall under the basic exclusion amount and will not be subject to a gift or estate tax, which includes transfers of this total amount either during lifetime or after death. Exceeding that amount in transfers would trigger up to a 40% tax.

Also, married couples continue to enjoy the benefit of Portability, which allows for a widow or widower to utilize any unused portion of their deceased spouse’s exclusion amount. This basically means that a married couple can transfer up to $10.24 million estate and gift tax free. However, in order to preserve this right, the widow or widower must file a timely estate tax return and elect to preserve this right. A timely return must be filed within 9 months of date of death of the individual, with up to a 6 month extension. A common problem we see in our practice is that once one spouse passes away, the survivor often does nothing. Portability makes it even more important that a widow or widower seek legal and tax advice promptly after the death of their spouse. Because no law is ever really permanent, the exclusion amount could be reduced at a later date and the failure to elect Portability could be a major missed opportunity to save money on estate taxes. While the new, higher estate and gift tax exclusion allows for more families to avoid having to pay an estate tax, it does not negate the need for individuals to do good estate planning. In fact, the Portability provision makes it imperative that they seek qualified help and advice at the death of a spouse.

How will this impact our practice? Because the vast majority of my clients do estate planning to provide peace of mind for their loved ones rather than to avoid taxes, the new law will have little impact on their motivation. As far as the type of structure we use within the documents to address estate taxes, we will continue to build in provisions which provide the maximum amount of flexibility to address whatever changes come in the future. Finally, we will continue to focus on the non-tax protections available for the family that are often overlooked in traditional estate planning. Creditor claims, divorce, remarriage, spendthrift and other issues can be just as devastating to an estate as an estate tax bill so we will continue to address those in all of our estate planning documents. In conclusion, clients should be encouraged to pursue professional advice with estate planning for dealing with traditional issues and coping with the new law.

Check out the following article featured in Comstock magazine this month which includes an interview with attorney, Cecilia Tsang talking about planning issues surrounding the care of elders/seniors.

http://www.comstocksmag.com/Articles/0912_SS_Trans2_FamilyValues.aspx

The things that must be updated in one’s estate plan when someone gets divorced.  How to make sure they are protected from the unexpected.

Living Trust/Will

  • These documents contain instructions about a number of crucial estate planning decisions:  who is in charge of administration of the individual’s estate, who is nominated as guardian of minor children, who are the beneficiaries of the estate, and who is in charge of managing assets on behalf of the beneficiaries if they are minors.  The last thing a newly divorced individual wants is to have their ex-spouse be in charge of handling their assets should they become incapacitated or pass away.  After a divorce, joint trusts need to be dissolved with each individual creating their own with the appropriate updated instructions.

Durable Power of Attorney for Finances/Advance Healthcare Directive

  • These VERY IMPORTANT estate planning documents allow for the appointment of an agent to act on one’s behalf to make crucial financial and medical decisions in case of incapacity.  Again, the last thing a recently divorced individual wants is to have their ex-spouse in charge of their finances and medical decisions.  New powers of attorney should be executed post divorce.

Beneficiary Designations (Life Insurance Policies, Retirement Plans, PODs, TODs)

  • Beneficiary designations are essentially contracts between a financial institution/administrator and the person who owns the account.  These are extremely important because for estate planning purposes they generally trump any outside instructions.  Therefore, even if a trust/will document has been updated post-divorce, those instructions will not control an asset with a beneficiary designation attached to it unless the trust is named as a beneficiary.  Individuals often forget to update all of their beneficiary designations post divorce.  In fact, most people rarely, if ever update them and this can cause a nightmare when that individual passes away.

Titling of all Major Assets

  • In estate planning, title means everything!  Title dictates to whom and how an asset is transferred at death and who has control over it during lifetime.  The most common mistake made in estate planning is simply listing an asset in a trust document.  Proper and formal titling of all of the major assets is imperative.

At first glance, this number would appear to be very low with studies indicating that approximately 55 percent of American adults do not have a will or other estate plan in place.  However, I would argue that in fact most people do their own estate planning all the time, they simply don’t realize that they are doing it.

Those individuals who have neglected to establish any estate planning documents are opting into their state provided Intestate Succession Statute which is the body of law that determines who is entitled to the property from the estate under the rules of  inheritance.  This is commonly what I refer to as the “No plan, plan.”  The problem with this plan is that the state dictates all of the terms including who gets what and the process by which the estate is administered, often resulting in unintended and unwanted consequences and unnecessary expense and delay.

Aside from the inaction that is very common, there are many instances in which people proactively are making estate planning decisions without even realizing they are doing it.  Generally any time an individual chooses to take title to an asset or fills out a beneficiary designation form, they are effectively making estate planning decisions.  For example, taking title to their home as individuals, joint tenants, or tenants in common, etc. will dictate how that piece of property will be handled when they pass away.  Also, the way in which they take title to an account such as an investment account or bank account has the same type of effect from an estate planning perspective.  Finally, designating a beneficiary on a life insurance policy, retirement account, annuity contract, or other financial account amounts to estate planning.

These are very important decisions that are being made by individuals on a regular basis yet very few of the individuals understand the importance or consequence of these decisions.  Unfortunately, we often learn about these consequences when it is too late and we are called upon to fix the problems that are caused by these uninformed decisions.  If these individuals simply had access to information to make informed choices, the delay, expense, and stress of fixing these mistakes could be avoided.  Therefore, it is imperative that people realize that whether they take the time to sit down with an experienced estate planning attorney to get help and advice or not, the decisions they make regularly will ultimately have an impact on what happens to themselves, their assets, and their loved ones.

Attorney Cecilia Tsang walked the red carpet on behalf of Family Wealth Law Group and the Sacramento Rainbow Chamber at the Oscar Night Sacramento event hosted by Capital City Aids Fund.  The organization was founded in 1995 to raise money in support of HIV/AIDS services in the Sacramento area.  Family Wealth Law Group also donated a complete estate planning package to the silent auction.  This is our third year in a row participating is this wonderful event.

When meeting with clients to design their trust provisions, whether their children/beneficiaries are five or thirty-five years old, I often hear the same concern.    They are worried that the funds will be spent irresponsibly.  To combat this fear, we estate planners will often suggest the inclusion of language in the trust that will either; 1. Give the trustee absolute discretion to control the distributions in order to protect the funds, OR 2. List criteria that is intended to incentivize or discourage certain behavior (carrot or stick approach) in the beneficiary.  An example of these strategies is a trust stating that in order for the beneficiary to receive a distribution or become trustee of his/her own trust, he/she must attain a certain age or accomplishment.  Unfortunately, research shows neither of these approaches are the most effective ways of addressing the client’s primary hope that their child act in a financially responsible manner.

The danger of giving a trustee absolute discretion over the funds is that we are relying exclusively on the judgment of the trustee and their understanding of what the client would deem as an appropriate use of the funds.  With insufficient guidelines, this leaves the trustee in a precarious position.  Furthermore, if the chosen trustee is a not a neutral third party, it can create unwanted conflict between the trustee and the beneficiary, jeopardizing their personal relationship.

The Carrot/Stick approach can be problematic for a number of reasons.  Primarily, the benchmarks that must be obtained (certain age or accomplishment) are not generally reliable indicators of financial responsibility.  Age is certainly not a good indicator of financial responsibility.  I have clients with children in their fifties who do not handle money well!  Clients also often use obtaining a college degree as a benchmark, when, in fact, studies have shown that individuals with some college education account for over 50% of all bankruptcy filings.  Finally, studies have shown that money is not a good way of motivating behavior, and in reality, monetary incentives can often backfire!  So, in terms of encouraging financially responsible behavior for beneficiaries, a traditional carrot/stick approach is simply not the most effective.

An approach that does work requires an analysis that focuses on easily identifiable, objective standards. Many parents believe that education is a method for their children to achieve financial stability and success.  However, this focus on the method rather than the result is where traditional planning falls short, and after all, the results matter most, not the method.     Instead, we need to outline clearly the behavior we are trying to achieve, i.e. financial responsibility.  Some components of financial responsibility include the ability to manage income versus debt AND the ability to make and save money.

An example of an objective, results oriented benchmark is a FICO score, a measure that is widely used to represent the creditworthiness of a person and the likelihood that a person will pay his or her debts.  A FICO score is a mathematical equation that takes into account a number of factors including: payment history, amount of debt owed, length of credit history, and types of credit used.  The FICO score represents the result of a history of someone’s ability to manage their debt.  The benchmark of a high FICO score (however that is defined) would be an easily ascertainable way for a trustee to determine the financial responsibility of a beneficiary.

Another way to objectively evaluate one’s ability to live inside their means and save money would be to look at the percentage of their income that is spent over a specified period of time.  A trustee could use bank statements and tax returns to determine this percentage.  Theoretically anything under 100% of income spent would indicate the ability to live within ones means; however, most people would like to see their child have the ability to save money as well.  Evidence of a sustained savings outside of the trust assets would indicate this ability.

Why is looking at the result better than the method?  It is too difficult to lay out a specific path for someone.  There are simply too many variables in life and the incentives we create might not actually serve as motivators.  My job in assisting and counseling the client in these matters is to find a solution that will actually work and not create more problems.  Therefore, in estate planning we choose neither the carrot nor the stick!

Among the most common questions I receive is “Do I really need to create estate planning documents?”  This question is usually preceded by a litany of reasons why the person asking the question does not need estate planning:

“I’m too young”

“I don’t have any assets”

“I am single”

“I don’t have any children”

So, the real question is “Are there any estate planning documents that EVERYONE needs regardless of age, assets, or their family situation?”  The answer to that question is a resounding “YES.”  I recommend that everyone execute basic Powers of Attorney for Financial and Healthcare matters.  A Power of Attorney formally appoints someone to serve as your agent or attorney in fact and outlines the powers they have to act.  These documents are so important because they not only address very important issues, they also allow access for the chosen helpers/agents to assets and information that are generally barred to anyone other than the individual themselves.  Also, if these documents are not executed ahead of time and the individual loses the mental capacity to execute them later, the only remedy is a court appointed conservatorship.  Conservatorship proceeds can be long and drawn out and expensive while Powers of Attorney are relatively simple and easy to execute.

Obviously, Powers of Attorney are important for older adults who will rely on their adult children or other family members to care for them when they become unable to make decisions themselves.  However, the need for Powers of Attorney become less apparent to those individuals who are relatively young and healthy.   In fact, I often get asked “Well, won’t my spouse simply make those decisions for me?”  The reality is that while spouses do have certain rights and protections under the law, our laws are designed to protect privacy and confidentiality.  For example, if an asset such as a piece of property, bank account, retirement account, or life insurance policy is owned by an individual in their name alone, their spouse does not have an automatic right to get information about or access that asset.  In fact, a Power of Attorney or conservatorship document is necessary for anyone to deal with that asset on behalf of the individual if he or she is incapable of doing so themselves.  For healthcare and medical issues, an Advance Healthcare Directive is necessary to authorize not only decision making but also access to information and medical records even for spouses and parents.

So, in fact, no adult is too young, too single, or too poor to benefit from the safeguard of having Powers of Attorney in place.

With the holiday season rapidly approaching, family becomes a primary focus.  Family gatherings provide a valuable opportunity to discuss and assess various needs that have arisen. This is why the holidays are a great time to think about estate planning.   For those of us with older family members, it becomes imperative that we have estate planning documents in place allowing us to help when a need arises.  Powers of attorney for financial and medical issues allow us to easily handle these matters without having to deal with the court system.  For those of us with minor children, estate planning documents allow us to leave instructions to protect and care for them in case something happens to us.  Finally, having estate planning documents in place allow us to provide our loved ones with peace of mind that our affairs and estate can be handled as efficiently as possible by those left behind.   This holiday season, consider giving the gift of peace of mind by making sure that your estate planning documents are in place and encouraging family members to do the same.

Family Wealth Law Group can help with this important endeavor in two different ways.  To request the assistance of our experienced estate planning attorneys, please contact our office for a complimentary consultation.  Or, to use our Do-It-Yourself services, visit mydiytrust.com.

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