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Wednesday, July 8, 2009
I was sent a very in
I was sent a very interesting link on how do you pass on your security codes so that your heirs can access your data. This solution may not work for most of us but it will get us all thinking about ways to pass on those pesky codes and passwords. Enjoy: http://htxt.it/nkqM
Tuesday, July 7, 2009
Can I Use a Non-Attorney to Draft my Estate Plan?
I am frequently asked why you should go to an estate-planning attorney over just any attorney or even a paralegal or someone else who prepares Trusts, Wills, Advanced Health Care Directives, or Durable Power of Attorneys. I will explain the problems that can (and do) regularly occur when you go to one of these non-lawyer trust preparers.
To start out with, let me explain why you should not go to a trust preparer or other non-attorney, what I call a trust mill, to have your estate planning documents prepared. The following are some quick points to consider:
1. THEY CANNOT ADVISE YOU WHAT WORDS MEAN – Do you understand the difference between a Special Power of Appointment and a General Power of Appointment? Do you know what a Disclaimer Trust is? What is a Generation-Skipping Tax and how do you avoid it or plan around it? Do they even know what the current Death Tax and/or Gift Tax limits are? These are some very simple terms that estate-planning attorneys use every day and if you make the wrong choice, you could be causing your estate to pay additional taxes or placing portions of your estate in an irrevocable trust that your spouse cannot access. I have had to tell too many widows that they cannot take out a reverse mortgage because the trust they had with their husband was never updated.
2. THEY MAY HAVE LITTLE TO NO TRAINING IN ESTATE PLANNING, FAMILY LAW, TAXES, STEP-UP IN BASIS, PROBATE LAW, ETC. – When developing a competent estate plan, the person drafting the plan needs to take a multitude of issues into consideration to make sure that the plan they are drafting is correct for your situation. There is nothing worse than seeing a trust that was drafted for a couple under the tax limit when it should have been drafted for a couple over the tax limit. Or to receive a telephone call from the grieving widow wondering if and how her stepchildren can force her out of the house she has lived in for the last 30 years with her husband who is now deceased.
3. THEY CANNOT SPEND TIME ANSWERING YOUR QUESTIONS OR HELPING YOU MAKE DECISIONS – If you go to one of these non-lawyers for your documents, they legally CANNOT answer your questions or help you decide what choices you should make. The reason that they cannot help with these issues is that to answer your questions or help you decide what choices are best for you, is PRACTICING law. It is a crime in California to practice without a license and they can go to jail if they even suggest that you should give everything to your spouse or split the estate in half on the death of the first spouse. They literally can only have you fill out forms, draft the documents, and then have you sign the documents!
4. YOUR DURABLE POWER OF ATTORNEY AND HEALTH CARE DIRECTIVES MAY BE USELESS – Most non-lawyers (and too many lawyers) try and use the quickest and cheapest method of drafting documents so that they can make the greatest profit from you. Unfortunately, this becomes readily apparent when you look at the Durable Power of Attorney (DPA) and the Advanced Health Care Directive (AHCD) that they draft. They will almost always use a statutory form, which is basically a preprinted form (which by the way you can get at a stationary store for a few dollars and fill out yourself), with some fill-in the blank spaces. You again run into the problem discussed in Number 1 above in that they may not and you most likely do not understand what the forms say. In addition, most people when faced with a phrase, sentence, or paragraph that they do not understand leave the section blank. Leaving the wrong section blank, or worse, putting the right words in the wrong place can have dire consequences to the document's usefulness. Even if everything is filled in correctly, what does the check off box for real estate, financial institutions, trust, etc. mean on a DPA? As discussed below, you are left trying to figure out how to fill out the form yourself, so why are you using this non-attorney?
5. THEY CANNOT EXPLAIN ANYTHING IN THE DOCUMENTS – Once you have your prepared documents in front of you, the person cannot explain anything in the document. If you ask a question about a clause, sentence, or paragraph, they are legally required to tell you that they cannot answer that question and that if you have any questions you should consult with an attorney. All they can do for you is to have you sign the documents that you most likely have not read, do not understand, and are not even sure if they are drafted correctly. If they answer your question, you are now having your estate-planning document drafted by someone who is not concerned about breaking the law. And you are going to trust them with your entire estate???
6. THEY MOST LIKELY DO NOT CARRY ANY TYPE OF INSURANCE – Most of these people are a sole proprietorship and the only individual at the office. Most likely they have no insurance to cover any problems that they may have created by drafting the documents (by the way, attorneys in California are not required to carry malpractice insurance either so whenever you are talking with an attorney find out if they have insurance. If you find out they committed an error in your documents, or more likely, your children find this out after you have passed away, who is going to reimburse your children for the money they lost due to bad drafting? It cost my mother’s estate a six-digit figure because she went to one of these trust mills as I was not an attorney at the time.
These are just some quick and certainly not exhaustive examples of problems that can and regularly do arise when you go to a non-lawyer to have your documents drafted. Going to a lawyer to have them drafted does not necessary mean that you are going to do that much better. My next post will deal with how to choose a good lawyer and it may not be the way you think.
To start out with, let me explain why you should not go to a trust preparer or other non-attorney, what I call a trust mill, to have your estate planning documents prepared. The following are some quick points to consider:
1. THEY CANNOT ADVISE YOU WHAT WORDS MEAN – Do you understand the difference between a Special Power of Appointment and a General Power of Appointment? Do you know what a Disclaimer Trust is? What is a Generation-Skipping Tax and how do you avoid it or plan around it? Do they even know what the current Death Tax and/or Gift Tax limits are? These are some very simple terms that estate-planning attorneys use every day and if you make the wrong choice, you could be causing your estate to pay additional taxes or placing portions of your estate in an irrevocable trust that your spouse cannot access. I have had to tell too many widows that they cannot take out a reverse mortgage because the trust they had with their husband was never updated.
2. THEY MAY HAVE LITTLE TO NO TRAINING IN ESTATE PLANNING, FAMILY LAW, TAXES, STEP-UP IN BASIS, PROBATE LAW, ETC. – When developing a competent estate plan, the person drafting the plan needs to take a multitude of issues into consideration to make sure that the plan they are drafting is correct for your situation. There is nothing worse than seeing a trust that was drafted for a couple under the tax limit when it should have been drafted for a couple over the tax limit. Or to receive a telephone call from the grieving widow wondering if and how her stepchildren can force her out of the house she has lived in for the last 30 years with her husband who is now deceased.
3. THEY CANNOT SPEND TIME ANSWERING YOUR QUESTIONS OR HELPING YOU MAKE DECISIONS – If you go to one of these non-lawyers for your documents, they legally CANNOT answer your questions or help you decide what choices you should make. The reason that they cannot help with these issues is that to answer your questions or help you decide what choices are best for you, is PRACTICING law. It is a crime in California to practice without a license and they can go to jail if they even suggest that you should give everything to your spouse or split the estate in half on the death of the first spouse. They literally can only have you fill out forms, draft the documents, and then have you sign the documents!
4. YOUR DURABLE POWER OF ATTORNEY AND HEALTH CARE DIRECTIVES MAY BE USELESS – Most non-lawyers (and too many lawyers) try and use the quickest and cheapest method of drafting documents so that they can make the greatest profit from you. Unfortunately, this becomes readily apparent when you look at the Durable Power of Attorney (DPA) and the Advanced Health Care Directive (AHCD) that they draft. They will almost always use a statutory form, which is basically a preprinted form (which by the way you can get at a stationary store for a few dollars and fill out yourself), with some fill-in the blank spaces. You again run into the problem discussed in Number 1 above in that they may not and you most likely do not understand what the forms say. In addition, most people when faced with a phrase, sentence, or paragraph that they do not understand leave the section blank. Leaving the wrong section blank, or worse, putting the right words in the wrong place can have dire consequences to the document's usefulness. Even if everything is filled in correctly, what does the check off box for real estate, financial institutions, trust, etc. mean on a DPA? As discussed below, you are left trying to figure out how to fill out the form yourself, so why are you using this non-attorney?
5. THEY CANNOT EXPLAIN ANYTHING IN THE DOCUMENTS – Once you have your prepared documents in front of you, the person cannot explain anything in the document. If you ask a question about a clause, sentence, or paragraph, they are legally required to tell you that they cannot answer that question and that if you have any questions you should consult with an attorney. All they can do for you is to have you sign the documents that you most likely have not read, do not understand, and are not even sure if they are drafted correctly. If they answer your question, you are now having your estate-planning document drafted by someone who is not concerned about breaking the law. And you are going to trust them with your entire estate???
6. THEY MOST LIKELY DO NOT CARRY ANY TYPE OF INSURANCE – Most of these people are a sole proprietorship and the only individual at the office. Most likely they have no insurance to cover any problems that they may have created by drafting the documents (by the way, attorneys in California are not required to carry malpractice insurance either so whenever you are talking with an attorney find out if they have insurance. If you find out they committed an error in your documents, or more likely, your children find this out after you have passed away, who is going to reimburse your children for the money they lost due to bad drafting? It cost my mother’s estate a six-digit figure because she went to one of these trust mills as I was not an attorney at the time.
These are just some quick and certainly not exhaustive examples of problems that can and regularly do arise when you go to a non-lawyer to have your documents drafted. Going to a lawyer to have them drafted does not necessary mean that you are going to do that much better. My next post will deal with how to choose a good lawyer and it may not be the way you think.
Saturday, July 4, 2009
Should we put our child on the title of our house?
Many elderly people think or are told that the best way to avoid having their house go to income taxes, estate taxes, capital gains taxes, probate fees, to pay for their medical bills, or to their creditors is to place one or more of their children on the title to their house.Unfortunately, this advice is usually coming from someone with no experience or training in any of these areas. Usually, the person giving the advise has gotten this idea from a friend or off the Internet and the parent has no idea of the problems that they are actually creating by placing a child on the title to their home.
Here are a few quick bullet points of SOME of the problems that can occur by putting a child on the title of your home:
1. YOU CAN LOSE YOUR HOME - If your child gets into financial trouble with creditors, the IRS, a lawsuit, etc, the child's creditors may be able to come after your home.
2. YOUR CHILD COULD TAKE OUT A LOAN AGAINST YOUR HOUSE - Your child is now a co-owner and could possibly take out a small loan on your house. For a large loan or to sell the house, your child would normally need to obtain your signature(s).
3. YOU MAY BE DISINHERITING YOUR OTHER CHILDREN - Depending on the laws of the state where your house is and the why your child takes title with you, your house could automatically become the child's house and your other children would then not get a share of your house.
4. YOU ARE ACTUALLY INCREASING THE RISK OF TAXES - By placing your child on the title to your home, you have created a gift tax issue that needs to be addressed. In addition, by giving the gift, you have increased your child's liability for capital gain taxes on the sale of the house. If your child WANTS TO (i.e., the child may not legally have to) share the profit on the house with their siblings, your child also runs into gift tax issues.
These are just some quick examples of problems that can occur on the transfer of your house to one or more of your children. Prior to any such transfer, you should consult with a competent estate planning attorney IN THEIR STATE as the laws vary by state.
Come back soon for another quick legal thought. If you have a GENERAL legal question, feel free to post it here.
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