Everyday Estate Planning

Assembly Bill 2747, signed by Gov. Arnold Schwarzenegger on September 30, 2008, requires doctors to provide terminally ill patients with disclosure and counseling about their options for end-of-life care.

What does that mean for patients and their families? Simply put, health care providers are now required to let them know about their choices when they've been diagnosed with a terminal condition, including:

• hospice care
• their prognosis, with and without disease-targeted treatment
• their right to continue such treatment with or without palliative care (treatment to relieve, rather than cure, symptoms caused by cancer), and
  
• their right to give individual health care instructions in their Advance Health Care Directive.

This is the first bill of its kind to pass in the country. Its advocates say that it shifts the decision-making power to the patient. Its opponents insist that it sets the stage for future assisted-suicide legislation. Whatever your opinion, the result is the same: patients now have a legal right to know their end-of-life options.

In my neighborhood, I see ads and fliers for low-cost living trust seminars nearly every month. Since I draft living trusts and charge considerably more for my services, I am suspicious of what these seminars really offer.

Often, such seminars are scams designed to lure in senior citizens with the promise of bargain-rate estate planning. Here's how it works: A low-cost trust is offered, but it's just a pretext for getting people to reveal their confidential personal financial information. These companies then send unscrupulous insurance sales agents to people's homes to follow up with offers of annuities and other financial products that can mean disaster for those who buy them.

How? From a Jacksonville, North Carolina newspaper: A woman cashed out her IRA and purchased an annuity. The sales agent didn't tell her that her monthly payments would fall from $1700 to $300 per month. A couple put their savings into an annuity with a "guaranteed" 7% interest rate. The sales agent didn't tell them that was only a first-year rate or that they would face a nearly 20% penalty for any withdrawal of their money.

To avoid these scams, use common sense:

• Don't buy a financial product that you don't understand.
• Don't work with estate planners who aren't licensed to practice law.
• Don't work with anyone who uses high pressure sales tactics.
• Be suspicious of any living trust that's marketed at an extremely low price.

It's natural enough that, as parents age, their adult children begin to think about what they'll inherit and how. This can make parents feel uncomfortable and adult children feel ghoulish. Some families -- I suspect many -- just don't discuss it. How do you tell your kids that you feel one should inherit more, and that another's already gotten all the support they'll need? How do you broach the entire topic with a parent that you love very much, but see fading? But, like so many family issues, it's a conversation very much worth having, and not just for the wealthy.

Estate planning is an act of love, after all. It's about the orderly transfer of what you've managed to accumulate. If you've taken the time to think hard about who needs what you've got and the best way to transfer it to them responsibly, you've gone a very long way to making that transition easier for everyone.

So why not take the next step and at least outline the plan to those concerned? You don't, of course, have to disclose the details if that's uncomfortable. But you can communicate the broad outlines: Are there charities that you intend to support? Are you planning to treat all of your children equally, or are there reasons not to? 

According to a recent article in the New York Times by David Cay Johnston, it's not just a good idea to talk to your kids -- it can significantly lessen the chance that they will challenge your estate plan in court after your death. In his article, Johnston quotes Gerald Le Van, one of the few family wealth mediators in the country, who says, "[T]he children and grandchildren may not like your choices, but at least they feel like you treated them as adults, that you genuinely asked what they wanted and they can then say to themselves, 'O.K., this is not what I wanted, but you don't always get what you want.'"

In second marriages, where there can be deep tension between the adult children of a first marriage and the often much-younger spouse of a second marriage, clear communication can be even more important.

The Times article also quotes Olivia Mellan, a psychotherapist who runs the Web site MoneyHarmony.com, who said that even middle-aged children tended to "interpret the absence of money in a will as being the absence of love from a parent."

When children cannot accept an uneven split or some of the money going to a stepparent, Ms. Mellan recommends telling them: "This is the only way I can die peacefully. I love you, but when it comes to my money, this is what I have to do."

Recently, the New York Times published an article, at once fascinating and chilling -- at least for those of us with parents who "collect" things. Imagine having to go through your deceased father's house to cull out what's valuable and what's not --especially when your father was a noted collector of historical relics, kept few or no records, and had amassed a collection of more than 3,000 objects, including the purported remains of the severed penis of Napoleon Bonaparte!

Says his daughter, Evan Lattimer, about the job of researching and cataloging the objects: "I sleep about three to five hours a night. This is all I do."

Most of us, of course, don't have quite that task in front of us, but most of us, sooner or later, will have to deal with the lifetime of things left behind by our parents, or assist them in downsizing when they decide to move to a smaller home or to an assisted living facility.

The AARP, in one of its most requested articles, Conquering Clutter, gets to the root of why this can be such a painful and difficult process: the objects aren't just clutter. In fact, "the items that had been used the least were the hardest to throw out, symbolizing as they did not fond memory but never-tapped potential. They were... artifacts of unused life." 

Here are some handy tips to help a parent (or anyone, really) get rid of some of that stuff now.

Continue reading "Cleaning Out The House: Dealing With Dad's Weird Stuff" »

Here's something to think about when you're planning your estate: More than 90,000 Americans are currently on national transplant lists, waiting for organs that will save their lives. One-third of them will die before getting what they need. You can help by becoming an organ, eye or tissue donor. It will make a real difference. One donor can benefit as many as eight other people. Consider these statistics:

• Every 12 minutes, another name is added to the national organ transplant waiting list.
  
• In 2005, there were 7,593 deceased organ donors and 6,895 living organ donors, resulting in 28,108 organ transplants.
• 90% of Americans say they support donation, but only 30% know the essential steps to take to be a donor.
  

State laws differ on exactly what you need to do to make an organ donation as part of your estate plan. Many allow you to register in an online donor registry, or when you renew your drivers license or state ID card. To find out the requirements in your state, go to www.donateforlife.org.

It can happen in any family, even famous ones: One sibling ends up administering the family estate and before long, the other siblings feel shut-out, suspicious, or just mad. They ask for information about how the assets are being managed or distributed and don't get answers. Since no one knows how the money's been invested or spent, everyone assumes the worst. Pretty soon, no one is talking to each other, only to attorneys. Then the lawsuits get filed.

A recent AP story reports that two of Martin Luther King's children, Bernice and Martin Luther King Jr. III, have filed a lawsuit against the third, Dexter King, who is the administrator of his father's estate. They claim that he has failed to provide them with essential documents, including financial records and contracts.

If you are serving as a trustee or executor of your parent's estate, or, if you know that you have been named to serve by your parents, but your siblings have not, take note of this classic family feud. Make sure that you understand what your duties are, be careful not to use any estate money for your own use, and, above all, keep really good records of what you've spent and how you've spent it.

When your siblings ask you for accounting information, provide it. In this case, silence is not golden.

 

For years, I've told my clients to stop feeling guilty that they haven't done an estate plan yet and feel good that they're making one -- most people never draft a will before they die.

A new survey published by Lexis-Nexis recently backed me up. The Harris Interactive poll, conducted for Lawyers.com, surveyed 1,018 adults and found that more than half (55%) of them didn't have a will. Only one in three African American adults (32%) had a will. Only one in four Hispanic Americans (26%) had a will.

Why do so many people persist in acting like they're immortal? Here are the top reasons identified in the survey:

• People don't like to think about dying.
• People don't know how to get started or who to talk to about an estate plan.
• People think that they don't have enough assets to need one.
  

For the record: We all die. There are terrific self-help products out there to help you get a will done, and there's no minimum asset requirement for leaving behind a valid will -- no matter what you've got, it's important to name guardians for minor children and clearly state your wishes with regard to how your property is to be distributed.

So, what's holding you back now?

It's classic: grandmother dies, and a formerly happy family dissolves into unhappiness over distributing up her personal property. The problem is that everyone wants that pie plate, special painting, or lemonade pitcher and all the will says is that her children and grandchildren should "divide up the personal property in substantially equal shares."

Deciding who gets what has a tendency to reduce even the most mature of us to four-year olds, squabbling over toys, because there's only one of each treasured thing, and it's just not possible to divide them into pieces.

Now, eDivvyUp, an online auction site, offers a new alternative to what can be a very uncomfortable situation. At eDivvyUp, a family estate manager can register the estate, catalog and photograph the available items, invite the family to participate in the auction, and then (here's the critical thing) assign each family member an equal number of points.

Want that pie plate more than anything? You can bid all 1,000 points and win it, but you won't get anything else in the auction. At the end of the auction, the estate manager's job is to distribute the property to those who won.

Online auctions are not a substitute for the kind of good family communication that may help avoid conflicts in the first place. I'm sure unhappy families would still be able to find something to squabble about (like the auction results). But they might be just the ticket for some families, who can use an online auction to divide up treasured things as fairly as possible. 

Good news for those of us juggling kids, careers, and aging parents!

Did you know that two states, California and New Jersey, now offer family members up to 6 weeks of paid time off to care for critically ill family members or to bond with newborns or newly adopted children (and Washington will offer up to 5 weeks off for parents of newborns and newly adopted children)?

The federal Family and Medical Leave Act (FMLA) permits family members to take up to 12 weeks of family leave without losing their jobs, but it's unpaid leave, and employers with fewer than 50 employees are exempt.

These state programs are great news for all of us struggling to balance work and family responsibilities. It's one thing to offer people the opportunity to take time off to care for their family -- but it's another thing altogether to be able to afford it. For more information about family medical leave in the other 47 states, go to http://www.paidfamilyleave.org/otherstates.html.

And for more information about the rules for the three states mentioned above, see Nolo's article Paid Family Leave in California, New Jersey, and Washington by Lisa Guerin, J.D.

When our loved ones pass away, we miss them. It's just how we are. From ancient times, we have found ways to honor the dead and keep their stories alive within us. They live on in our memories and in our hearts. We try and keep them near by cherishing their heirlooms, photographs, clothes and music.

No material object, though, really does the trick--things just can't replace the loving presence of those now gone. For me, at least, the next best thing to being with those I miss most is being with others who also loved them and sharing memories of the joke, the dinner, the bike ride, the office, or the time we all got snowed in.

And now (you may have seen this coming) online memorial sites offer you a way to remember your dear ones and share those memories with others, even if you can't all be together in the same place. Sites like Gates of Remembrance, Last-Memories, and Eobituary allow you to create web pages with music, photos, and writings about the dead. Some sites allow you to post memorial videos, create hardbound memorial books (so you can view them without an internet connection), or create family trees. Some have chat rooms for the recently bereaved. Some provide ways to send e-sympathy cards. Most are free, though some charge monthly fees for storing the archive you'll create.

Honestly, I don't know whether an online site could ever replace a wake, a memorial service, or a good scotch at the beach, at least for me. Death, like birth, is one of the more physical, and therefore, non-virtual, experiences I've ever shared with others. It's profound, it's mysterious, and it requires no electricity.

But for some, these online memorial sites may offer solace and a place to share precious photos, videos, audio files, and memories. Who knows? Maybe online scholars a thousand years from now will find these sites as rich in history and tradition as those dusty family bibles and scrapbooks hidden in the attics of the past. Only time will tell.

If you, or anyone you know, has been approached by someone offering to buy them a life insurance policy and promising a risk-free way to earn some serious cash, be cautious. From the same folks who brought you risky mortgages that you couldn't afford and packaged them as 'no-risk' securities on Wall Street now comes stranger-owned life insurance: a way for third party investors to package life insurance policies into securities, promising a high yield with 'no risks'. Yeah, right.

Here's how it works: A promoter will offer an elderly, wealthy person a fairly surprising deal: The older person agrees to purchase a $10 million life insurance policy, and the promoter lends them the money to pay the premiums for two years. They'll even throw in cash up front for the hassle of applying and going through a medical exam. The insured pays nothing during that time, not even interest. If they die during that time, their family gets the death benefit, minus the cost of the loan. If they don't die at the end of two years, they can keep the policy and pay back the loan plus interest. Or, they can sell the policy and use the money to pay back the loan, or transfer it to the lender and pay nothing.

What's wrong with this picture? Lots. As the Music Man said, "We've got trouble, right here in River City."

Grandpa's not breaking the law by agreeing to do this, but the promoters are aggressively pushing the boundaries of acceptable insurance practice and policy. They're betting that Grandpa won't agree to continue that policy after two years but will instead allow them to become the owners of the policy on his life. That's a pretty good bet, since Grandpa wasn't even thinking of buying that policy until the promoter came to town!

If they pay Grandpa $500,000 up front for the hassle of going through the application process and taking that medical exam, and he doesn't choose to own it after two years, they know that when he dies, they'll collect the $10 million -- which is a great return on investment, even after the up front cash payment and the tax they'll owe on the payout.

But, let's face it, life insurance isn't supposed to be packaged into investments and sold to strangers. It gets special tax treatment (it builds up value tax free and payouts are not taxed as income or capital gains) because it's supposed to protect families after a death. It's supposed to be about widows and orphans, not hedge funds and investments pools.

You aren't allowed to buy life insurance on people you don't know or have no economic interest in insuring. But, here's the really clever/evil part of this scam: after a policy's been owned for two years, the insurance company can't do anything about a stranger owning the policy. That's why the promoters are willing to pay Grandpa up front to buy a policy he doesn't even want!

It might not even work out so well for Grandpa: Buying the policy and selling it after two years could mean that he can't buy insurance coverage in the future. He might take a tax hit on the accrued interest he didn't pay for the two years; he might be taxed on the cash advance up front.

The life insurance industry doesn't like this scheme either. They're worried that if Congress realizes that life insurance policies are really just investments, Congress will start taxing them that way, and they'll lose their special tax-favored status. If that happens, life insurance will probably become more expensive, and we'll all lose one of the all-time best estate planning tools for protecting our families at a reasonable cost.

If scams like this transform the insurance industry in the same way that the mortgage industry was transformed, the whole industry could implode faster than a Las Vegas neighborhood emptied by foreclosures.

It might be a digital world, but your estate planning documents are still on paper, and you want to be sure that they stay safe and can be easily found when your family needs to find them. So, where should you store them?

Probably not in a safe deposit box at the bank.

First, it's probably not big enough. Old-fashioned wills were printed on paper that easily folded into thirds (and were wrapped in nice blue paper to boot) but these days, most wills and trusts come in three-ring binders that won't fit in the standard shoebox-sized deposit box.

Second, unless your friends or family are co-owners of the box (and sometimes even if they are), it won't be easy for them to open it if you're not there. Having the key isn't enough to get the bank to open it up for them -- the bank wants you to prove that you have the legal authority to require them to open it up. Think about it: The document granting your friends or family the right to act on your behalf as an executor is INSIDE the box, and until the box is opened, they can't prove that they have the authority to get the bank to open it... (and so on).

Some states, having given this almost Zen-like problem some legislative attention, have laws that require the bank to open the box in this situation, just to see if there's a will inside; in other states, it depends on the bank's policy. In still other states, when an owner of a safe deposit box dies, the box is sealed until the state figures out how much the contents are worth -- even if there are surviving co-owners.

And third, there's those annoying, small keys to safeguard. Losing the keys to your safe deposit box is not a terrific idea. (I know that after two kids and five moves, I've lost mine.) Lost keys are an expensive proposition. When you rent a box from the bank, they give you two keys. The only way the box can be opened is when one of your keys and one from the bank are used at the same time. If you lose both of your keys, you have to pay the bank to drill out and replace the lock on the box -- about $150, depending on the bank.

So, where else should you store your estate plan? There are people who store them in their freezers -- estate planners recognize their documents because they are fragile and cold. It's a better idea to keep your originals in a fire-resistant safe in your house and to notify friends and family where it is -- and how to get it open.

These days, while the titans of Wall Street teeter on the edge of financial ruin and there's media chatter about the great depression, bank failures, and the domino effect, here's a comforting tip: the Federal Deposit Insurance Corporation (FDIC), which guarantees bank deposits up to $100,000, offers extra insurance for accounts owned by living trusts.

Here's how it works--the owner of a living trust account (which would be the person who set up the trust) can insure up to $100,000 per beneficiary, provided these requirements are met:

1. A beneficiary must be the owner's spouse, child, grandparent, parent or sibling.


2. A beneficiary must get their money when the trust owner dies.


3. The account title at the bank must indicate that the account is held by the trust.

Here's an example: A father has a living trust which leaves his assets equally to his three children. This trust can be insured up to $300,000.

Trusts with two owners can get $100,000 of insurance per beneficiary per owner, as long as the beneficiaries will inherit the money when the second owner dies. A mother and a father who establish a trust for the benefit of their three kids can insure up to $600,000 worth of trust deposits.

The $100,000 limit, though, applies to all trust accounts that an owner has at the same bank. So if a trust owner has a payable-on-death account and a living trust account, both naming the same three children as beneficiaries, the funds in both accounts would be added together and the total insured would be $300,000.

Every now and then, I get a call from someone whose parent has recently passed away, leaving behind a will that leaves everything equally to all the children. Except -- and this is the reason for the call -- a bank account, or a house, or a retirement plan, or a life insurance policy that was left to just one brother or sister.

The first question they have is whether this is legally possible: "Can Dad have done that?" they ask plaintively. After all, the will, they point out, left everything equally to all of the children -- how could something be given to just one of them?

The answer is that Dad was perfectly entitled to leave an asset like a bank account, a brokerage account, a house, or a retirement plan to a specific child, regardless of what his will said, because wills only govern the distribution of some, but not all, of the assets that a person owns. (Though spouses have certain legal duties towards each other, there are no such protections for children.)

Retirement assets and life insurance benefits go to the person designated as the beneficiaries of those plans. If Dad named his youngest daughter, Grace, as the beneficiary of his IRA or life insurance policy, the money is hers, and she has no legal obligation to share it with her siblings.

The way in which an asset is legally owned, called its title, can also determine the person who owns it after somebody dies. If Dad had placed Grace on the title to his home or bank account as a joint tenant, she would be the sole owner of that property upon his death. Owning property in joint tenancy means that when one owner dies, the other automatically owns the entire asset by what lawyers call the "right of survivorship" and no probate is required to transfer the asset.

And many bank and brokerage accounts can be transferred at death to a named beneficiary as well. If Grace had been the sole caretaker of Dad during his last illness, and he had wanted to reward her for her selfless dedication, he might also have left her one of his bank or brokerage accounts by making that account a transfer-on-death (TOD) or a payable-on-death (POD) account. By filing out a simple form at the bank or brokerage company's office, he could have designated Grace as the sole owner of the account upon his death. Again, such a designation would trump his will.

If you're a senior citizen with a valuable house, a scarcity of cash, and a low income, you're likely to have been approached by a salesman for a reverse mortgage. Reverse mortgages are aptly named: Loans are made based on the equity in your home -- you receive cash now and the loan is paid off, with interest, only when the house is sold or you move out (often after your death). A recent New York Times article reports that there’s now a $20-billion-a-year industry in reverse mortgages, with “elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier.”

While reverse mortgages can offer financial security to seniors otherwise unable to qualify for a traditional second mortgage or to find any other source of cash, they tend to be expensive and are often sold with high-pressure tactics. One woman, profiled in the Times' article, borrowed $218,900 against the value of her home, and received only $33,000 in cash. She disbursed the rest of the loan into complex investments that made it difficult to get her money back (and probably generated large commissions for others.)

And if that's not scary enough, a financial regulatory group has just issued a report that warns seniors not use these expensive loans as a way to finance their retirement, because they have high fees (typically 7% of the home's value) and can make it difficult for homeowners to leave their property to their heirs.

For helpful consumer information on what to look for and what to avoid when shopping for a reverse mortgage, check out the Federal Trade Commission's fact sheet and the AARP's Reverse Mortgage section.