Often times, it is ignorance or laziness that causes problems with people accepting documents.  We recently had two clients which had issues with a large bank accepting their documents.

Certificate of Trust

The first client had a revocable living trust and took the certificate of trust into the bank to have their accounts added to the trust.  In California (as an example), this issue is actually addressed by statute, which is often included in the Certificate of Trust.

RELIANCE ON THIS CERTIFICATION

This certification is made under California Probate Code Section 18100.5 and California Commercial Code Section 8402(a)(2)-(5) and is signed by all the currently acting Trustees. Any transaction entered into by a person acting in reliance on this certification is enforceable against the trust assets.

PROBATE CODE SECTION 18100.5(h) PROVIDES THAT ANY PERSON WHO REFUSES TO ACCEPT THIS CERTIFICATION IN LIEU OF THE ORIGINAL TRUST DOCUMENT WILL BE LIABLE FOR DAMAGES, INCLUDING ATTORNEYS’ FEES, INCURRED AS A RESULT OF THAT REFUSAL, IF THE COURT DETERMINES THAT THE PERSON ACTED IN BAD FAITH IN REQUESTING THE TRUST DOCUMENT.

The resolution was simply informing the personal banker of the consequences.

Power of Attorney

The second issue occurred when our client needed to be added as power of attorney to an additional account at a bank.  Our client visited (a different branch) and they did not want to accept the power of attorney.  What made this more frustrating for the client was that the bank had accepted the power of attorney before, but would not accept it this time without speaking to the clients mother.  While this sounds like a simple issue, the clients mother is unable to answer the identifying information for the bank to satisfy the bank that they were really speaking with our clients mother.

Bank employees are not typically familiar with legal documents and many bank policies encourage using their own internal forms to ensure that it provides the power over financial accounts, because they know their employees are not familiar enough with documents to ensure their validity.  Banks also typically have a legal department that can review other drafted legal documents to ensure compliance.

The client has a valid power of attorney for her elderly mother.  The bank had actually already accepted the power of attorney before to add our client to her mothers bank accounts, but that was added in the presence of our clients mother, so the bank now refused to accept the power of attorney.

In the conversation with our client, we reminded her that the purpose of the power of attorney is to allow you to legally assist her mother, because she is incapacitated.  It is a legal document that is properly drafted and she has the legal authority to act on her mothers behalf.

Once the client returned to the bank, and pushed back a little, explaining the important facts (valid power of attorney, they have already accepted it, and the clients mother is unable to properly identify herself), the banker submitted the power of attorney to the legal department and the issue was resolved.

Conclusion

You are likely far more familiar with your documents than the bankers that you take them to (especially if you went to an attorney to have them drafted).  Bankers are primarily trained how to sell and how to open accounts, not how to review legal documents.

When you are certain that the documents are actually correct, educating the banker and (politely) encouraging the banker to look for solutions rather than simply saying “no” can often resolve the problems.  If all else fails, try to escalate the issue to management, and they may be more familiar or see if your attorney can help resolve the issues.

These quick tips below will surely give you a leg up and some confidence going into that first meeting.   Most importantly, start the process of obtaining at least ten certified copies of the death certificate.   Death certificates are needed through out the process and for many different reasons.   Bring at least one copy to your first meeting if possible.

Next, determine if there is an existing will, or estate planning document, such as a revocable living trust.    If there is a trust, typically probate can be avoided entirely.  If not, however, then probate must commence and locating any existing estate plan or will can assist the process and your attorney immensely.    Once located, determine who the personal representative, or executor, of the estate is likely to be.   This person is usually identified in the will or estate plan.   If, however, there is no person identified, notify your attorney of this fact.   It is NOT necessary to contact this person if known, just be aware of the person who will legally carry most of the legal responsibilities.

Third, try to collect information on all assets and debt liability known to you.   For example, it would be helpful at that first meeting to bring copies of any existing life insurance policies, retirement accounts or pensions, bank account statements, and the latest tax return.    In addition, any and all real property ownership should be brought to the attorney’s attention.  It is extremely important to identify all property owned by the loved one who has passed, and identify if there is an existing mortgage on the land.

Lastly, bring a list of all possible children, relatives, or family members who might be connected with or associated to the individual who just passed.

With all of these documents and information, it should make for a successful first meeting and lesson the burden of figuring out what to do from there.   And remember, take the time you need to process everything and do not feel you are alone in this process.    Your attorney should be there to assist.

What to do after you close escrow?

When you buy a new home, there are many things that change.  You may be moving down the street, or to a new state, but there are things you should consider any time you move, let alone when you buy a new home.

Probate

In many (if not all) states, probate fees are determined with consideration of your assets, while ignoring your liabilities.  This means that if you buy a $1,000,000 home, with a $900,000 mortgage, the probate fees are determined by the $1,000,000 value and ignores the mortgage.

Location of Residence

Different cities, counties, and states have different laws.  One example, for Colorado, Denver County has more restrictions on firearms than other counties.  If you moved from another city to Denver (or even just during a visit), with an assault rifle, you’d likely be in violation of the law and subject to criminal prosecution.  There are other more subtle laws to consider, do you need to clear snow off the sidewalk?  What are the trash days?  Who are the utility providers?

One very important change is if you move between states, where estate planning laws can differ greatly.  Any time you relocate to a new state, you should pay careful attention to your will or trust and ensure it is updated appropriately.

Change in Assets

While relocating is changing location, it is often a change in assets.  You often sell a house or buy a house, or both.  Any time you have a significant change in your assets, you should evaluate and likely amend your estate plan (trust or will).

Estate Plan Needs

While many of the examples of reasons to move give independent reasons on why you should review your estate plan, because they are changes your family dynamic or there is a change to your assets that should be considered, it is important to look at the big picture.  Not all of these reviews will result in needing to change your estate plan, it is simply a good time to review it.  For example:

If you just bought a home…

(1) You have a revocable living trust;

(2) You are staying in the same state;

(3) You are married with no children;

(4) Everything goes to your the spouse if you pass away

(5) There is not a significant enough change in assets to affect any inheritance taxes for where you now live (if there are any); AND

(6) You still want all of those facts to remain the same

If all of the above are true, then the odds are that there is no need to update a trust, just make sure the house you bought is titled in the name of the trust.  If the house is not titled in the name of the trust, you should probably file a deed with the county to transfer the house into the trust.

In general, you should review your estate plan on a regular basis or when there are significant changes to your assets or family dynamic.

Proper estate planning can help save time, save money, and protect the privacy of an estate.  Probate expenses can have a wide variance depending on where you live and how much you have in assets.  Some states, like California, have specific fee schedules based on the assets you own upon your death.  Other states, have subjective fees where the probate statutes simply state that the fees must be reasonable.

These fees for Probate also are based only on assets and ignore any debts, which this means if you own a $500,000 home, and owe $450,000, the probate fees are based only on the $500,000 value of the home, ignoring the mortgage.  One thing to keep in mind while reading this is that a properly executed trust can avoid Probate entirely, negating these fees.

California

California Probate Code Section 10800 and 10810 provide that the attorney and the executor of an estate may each charge the following:

The first $100,000:  4% each [for a total of 8%]

The next $100,000:  3% each [for a total of 6%]

The next $800,000:  2% each [for a total of 4%]

The next $9,000,000:  1% each [for a total of 2%]

The next $15,000,000:  1/2% each [for a total of 1%]

Missouri

The Missouri State Bar offers a PDF about Probate that is very informative.  Please keep in mind that this document only applies to Missouri.  Within this published PDF document, it states:

Colorado

As noted above, not all states have set fee structures.  As an example, the Colorado State Bar offers this link about Probate.  Please keep in mind that this website only applies to Colorado.  Within this published website it states:

An attorney’s expertise is usually necessary in identifying what type of probate is necessary, and the scope of the attorney’s involvement will depend on the complexity of the estate. Even the most well-planned estates and well-written wills have costs associated with administration, including court fees, attorney fees, and the payment of the decedent’s final expenses and legitimate debts. Most attorneys charge an hourly fee, and the rate depends on several factors, such as the attorney’s expertise and experience, the novelty and difficulty of the case, the results obtained, and costs involved.

Most people do not understand the time and labor it takes to go through probate.  There is a good article on avvo.com that states the average probate fees in Colorado are between 3% and 4%.  This can be far cheaper than some states, like California, however it is still fees that can easily be avoided with a properly established estate plan.

Conclusion

Proper estate planning can save time, money, and provide additional privacy.  For more information on Estate Planning, please see this prior blog.

In a comparison of a will provided by LegalZoom and a will from an attorney, I think most people would agree that a more educated and legally proficient person may be able to obtain a better end-result with DIY product than a less educated and less-proficient person.  In exploring this theory, a Minnesota attorney named Gregory Luce decided to compare LegalZoom with a will drafted by an attorney. The article about his experience can be found here.

There are two things that caught my attention with the article, the first is that Gregory Luce was not trying to get more estate planning business, he was not an estate planning attorney, he is the Practice Development Director for the Minnesota State Bar.  The endeavor was for educational purposes, to do a real comparison.  In contrast, I practice in transactional work (non-litigation) where DIY companies claim to provide high quality comparable products.  I have seen first-hand the differences in the products and I do not like seeing people make mistakes without fully understanding the consequences of a DIY transaction.  The second thing that caught my attention was some of the items pointed out, such as “80 percent of the people who fill in blank forms to create legal documents do so incorrectly” and it did not address specific protections for his child from his previous marriage, possibly disinheriting his eldest son.

Similar to Mr. Luce’s experience, I decided to explore how LegalZoom worked.  Although I didn’t purchase anything from LegalZoom, I entered information to open my own law firm (for Professional Services), including the states we will be doing business on LegalZoom.

• LLC? C Corp.? S Corp.?  Confused about your options?  Answer a few simple questions and find out which one may be right for you.  — I selected “Help Me Decide”
• Then I was asked “Where do you plan to run your business?” — I selected From an office or location separate from my home (and did not select: From my home or home office)
• In what state is your business officially located?  — I selected Wyoming
• Will your business be outside of Wyoming? — I selected Yes
• Which of the following describes the nature of your business? — I selected “My employees or I will physically conduct work outside of Wyoming (and did not select: My business will ship goods to customers outside Wyoming)
• Which states outside of Wyoming will your business operate?  — I selected California, Colorado, Montana, North Dakota, Nebraska, Missouri, Washington DC, Maryland, and Virginia
• What is your primary business activity? — I selected Professional Services
• Will your business have other owners besides yourself? — I selected Yes
• How do you intend to finance this business? — I selected my own money
• Which of the following best describes your goal for the business?  — I selected Grow the business but keep it with original owners or within our families (and did not select Grow the business so it can be publicly traded nor Sell the business)

I chose the answers that I would have chosen in establishing my own firm, with my expectation of where the firm is going to operate in the future, from the options they provided.  The result:  81% of customers in Wyoming chose to form a Limited Liability Company (LLC).  If I change the options to form the entity in California, LegalZoom said 67% of their clients form an LLC and 33% form a Corporation.  These results could make most people think that the Limited Liability Company is the best option.  The problem with this result is that not all states recognize a Professional Limited Liability Company and if my firm were to operate in a state that does not recognize a Professional Limited Liability Company would be a Professional Corporation.  Please also keep in mind, these questions and answers from LegalZoom do not look at other considerations, such as tax, corporate governance, etc.  LegalZoom puts a round peg into a square hole, many times it may fit, but it does not cover the intricacies of life, nor the law.

I think every lawyer (and law student) quickly learns that they are always being asked for (free) legal advice.  Nearly every week I get asked for either “free” advice or “pro bono” advice.  In law school, I often replied with “I am not a lawyer, I am a law student.  I may know enough to think I know the answer, and be completely wrong.”  Now I can’t use that excuse, but I also know to keep to the areas of law that I am familiar and comfortable with, and where I am licensed to practice.

In conclusion, although things can go well with a DIY document, mistakes can be far costlier than even not doing anything and even if it does work, it may not cover the intricacies of what you really want to happen, or what you would have wanted if you knew the option was available.  If you opt to purchase a DIY document, you may want to have it reviewed by a licensed attorney.  Best case, you find out that the document meets all of your needs.  Worst case, you find that your document does not meet your needs, and obtain a properly drafted document by an attorney.

While these DIY options to establish a plan do exist, the question remains of the quality of the plan that these DIY options create.

The first issue, before we even start talking about the differences in the end-result (quality), is to point out that DIY operators, like LegalZoom, are not law firms. One of the first differences is illustrated with the LegalZoom disclaimer from their website  (Emphasis added):

Disclaimer: Communications between you and LegalZoom are protected by our Privacy Policy but not by the attorney-client privilege or as work product. LegalZoom provides access to independent attorneys and self-help services at your specific direction. We are not a law firm or a substitute for an attorney or law firm. We cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms or strategies. Your access to the website is subject to our Terms of Use.

LegalZoom clearly states that they are not attorneys, they cannot provide advice, and that anything you tell them does not have the legal protections of attorney-client privilege or as work product.

In contrast, hiring an attorney provides the legal privacy protections of attorney-client privilege and the legal knowledge that ensures your specific situation is addressed in a manner that you want. They get to know your situation, your concerns, and your dreams so they can address all of that in your estate planning or business formation documents.

The second issue is quality of the product you obtain from the DIY company.  For simple legal needs, a DIY company may provide a document that works, but rarely explores the complexity of the situation.

Example 1:  If you obtained a Revocable Living Trust from a DIY company, do you also have a Pour Over Will?  Do you also have a Healthcare Power of Attorney?  Do you also have a Financial Power of Attorney?  Life is rarely simple.  Most people would think that it is a simple process to fill in the blanks on forms and they would be set.

Example 2:  If you establish a business with a DIY company, did you form the correct entity?  Is a Sole Proprietorship correct? A Limited Liability Company (LLC)?  A C-Corporation?  An S-Corporation?  Do you have the appropriate documents to run the business?  Do you have the appropriate licenses?  Do you need a Registered Agent?  Do you need to file paperwork with any other government agency?  Did you get your Employer Identification Number?

When most people buy a car, they take it for a test drive before they buy the car. When most people buy a house, they examine several houses before they decide to buy the house. Unfortunately, that is not possible for DIY documents and that is why most people need the assistance of a licensed attorney that understands both the law and the impacts that these decisions will have.  Both opening a business and establishing an estate plan can be a fairly simple and straight forward processes to accomplish, but if it is done without the appropriate planning, it can be far costlier in litigation and other expenses.  Most things in life are not simple and straight forward, and trying to make decisions thinking that it is, can be costly.

In Part 2, we will finish exploring DIY compared to attorney products.

Save Time

Probate takes time and is often dependent on court schedules. As an example, there was one case that we followed in 2012-2013 that had a trust, and had to go through probate because some of the assets were not included with the Revocable Living Trust.  In that case, the probated items took approximately nine additional months to resolve and cost attorney and personal representative fees were an additional $17,000.  I am using this example because it was a very simple estate with one beneficiary (widower), with no disputes, and no delays in the processing of documents.  It is important when you establish your trust; you ensure all of your property is properly included with the trust.

There can also be a great disparity between states for how long probate takes where a few states can process a probate quickly (and relatively cheaply).

Protect Privacy

A Testamentary Will is a public record for anyone to be able to access. A trust is a private document that people can typically only see the portions of the trust that apply to them.  For most people, this will provide potential protections from disputes and help the estate to be processed more efficiently for your loved ones, but for some, the privacy from public scrutiny could also be a benefit.  An excellent article demonstrating public scrutiny will help illustrate potential situations.  Often people do not want to publish their assets, and similarly, they also do not want the assets passed to their heirs to become a public record.

As with the public scrutiny example above, people often do not realize what can be obtained from public record searches.

Benefits of a Will

A will is a simple document that is typically cheaper to establish than a Revocable Living Trust.  It essentially tells the court what a person would like to happen to your property after death.

Conclusion

The differences between a Will and Trust in establishment is typically related to costs and the complexity of documents.  Which is right for you will depend on your specific situation.  There are other methods for avoiding probate of some assets, but in most jurisdictions, certain property types (such as real estate) offer additional complexities that a Trust may be the best or easiest solution to avoid probate.

The bottom line on comparing a Trust compared to a will during your lifetime is that there is a little more paperwork and a little more costs for setting up the Trust compared to the will. Upon death, there may be tremendous differences between a trust and a will saving your beneficiaries a tremendous amount of time, money, and hassle.

Estate Planning 101 – Advice from an Attorney

As an Attorney, I love candid conversations with clients.  I love to educate.  I love to help people understand their options.  I love to help people achieve their goals.  When you speak to any attorney with the objective of potential representation, it is best to be candid about your thoughts, your fears, your concerns, and your dreams.  It is the only way to really understand the situation and these conversations are protected by Attorney-Client Priviledge.

One of the most memorable (and candid) conversations I remember about setting up a trust, the objection to having a trust was “I don’t care what happens, I will be dead.  My children are grown and they can handle it.”  I assumed that the response was for two reasons:  First, people do not enjoy planning for their death; Second, this person did not fully understand what would happen upon their death.  The response was to ask a few questions that informed this person of the consequences of their decision.

Question 1:  I know that one of your children (confidential), do you want this person to have immediate and uncontrolled access to all of the funds of the estate once probate is concluded?

Question 2:  How will the children pay for the bills, the funeral, or any other obligations or needs during the probate period?

Question 3:  Do you realize that going through probate with your current assets would likely result in over $50,000 in fees to the estate that can be avoided?

After these three simple questions, this person decided that it was time to get a trust.

Over the next couple of weeks we explore “Should I hire an attorney?” as comparison of hiring an attorney or using do-it-yourself services, such as LegalZoom and pre-printed forms.

Revocable Living Trust

A Revocable Living Trust is a document that tells the successor trustee (acts similar to the executor or the personal representative in Testamentary Will) what you want to happen with your property after you pass away, and you can amend (change) the Revocable Living Trust at any time in the future.  A revocable living trust can also continue beyond the immediate distribution and can make distributions for ongoing care of children or pets.

One of the most confusing aspects of a trust for most people is that the assets you own would change from being your property, to being the property of the newly created entity (your trust).  The trust would then become the owner of the property, but you would still be able to do anything you did before with the property.  You can buy property to put into the trust. You can sell property from the trust.  You can give property away. Anything you do before a Revocable Living Trust, you can do after the Revocable Living Trust.

To illustrate this, let me use hypothetical clients named John and Jane Doe. If John and Jane Doe had a bank account in their names, the ownership would be listed as:

Primary Owner: John Doe                    Secondary Owner: Jane Doe

Both John and Jane Doe can write checks on the account, make deposits into the account, or even close the account and open additional accounts. Either John or Jane Doe could act independently without the other to do any of these transactions.

After the trust is created, then John and Jane Doe could put the bank account into the trust and the ownership would be listed as:

Primary Owner: The John and Jane Doe Revocable Living Trust Dated November 19, 2014

Trustee: John Doe                    Trustee: Jane Doe

With the trust, both John and Jane Doe can write checks on the accounts, make deposits into the account, or even close the account and open additional accounts. Either John or Jane Doe could act independently without the other to do any of these transactions. There are no differences in what John and Jane could do with the property before or after it was placed in the Revocable Living Trust.

Benefits of a Trust

There are three main reasons people choose to have a Revocable Living Trust over a will. A Trust will typically allow an estate to save money, save time, and protect privacy of the estate plan and assets.

Save Money

While we explored the Probate expenses in Part 1, the Revocable Living Trust avoids most of those expenses by avoiding probate. There are some fees associated with assisting the successor trustee after death, but typically it is far less than the costs associated with a probate.  A Revocable Living Trust will often be far cheaper than a will upon death when considering probate costs in most states.

In Part 3, we will conclude with exploring the benefits of a Revocable Living Trust and the benefits of a Testamentary Will.

Estate Plans

One of the first questions we are usually asked is if someone really needs a trust or a will. In answering that, we need to explore what a Will does, how a Trust differs from a Will, and why they are important in an estate plan.

Everyone should have a either a Will or Trust (Estate Plan) because without one, the courts rely on statutes within the state to determine what happens to your estate. Even if there is no individual that you wish to leave your property to, it is often preferred to leave it to charity rather than the possibility of the government taking all or some of your estate.

There are three main reasons people choose to have a Revocable Living Trust over a will. A Trust tends to save money, save time, and protect privacy, although it tends to have a higher upfront cost than a will, it will tend to be cheaper than a will upon death. In this part, I will briefly discuss what a will does and explore the costs to the estate going through probate.

Testamentary Will

A testamentary will is a document that tells the court what you want to happen with your property after you pass away, and you can amend (change) the will at any time in the future.

When someone dies with a will, the estate will be handled through probate (court) and your Executor (or Personal Representative) that you named in your will would represent you in the probate process. Typically the Executor would hire an attorney to help with the probate process. Some states, like Missouri, simply state that fees must be “Just and Reasonable”. Some states, like California, Montana, and Wyoming provide specific fees for the attorney and specific fees for the executor of the estate. These listed states are not the only states, however I am using them as examples to show some various fee structures.

Probate Fees

Probate fees are fees that are charged by the executor (or Personal Representative) and the attorney for managing an estate. These fees are paid for from the estate assets and reduce the inheritance to your named beneficiaries.

The statutory fees for probate do not look at debts or liens, so if you owned a home valued at one million dollars ($1,000,000), and owed eight hundred thousand dollars on the mortgage, the estate fees would be determined based on the one million dollar ($1,000,000) value of the home and ignore the mortgage.

In Part 2, we will explore a Revocable Living Trust, and start to explore the benefits of a Revocable Living Trust.