allegiant real estate capital

Estate Planning Blog – allegiant real estate capital

Real Estate

Estate planning, administration, and litigation in California From time to time, our office receives a call from someone who has been a client (or was a client of one of the two firms whose files I’ve taken over) who wants to see a different attorney. Sometimes this is because they live too far away to easily travel to my office, or because they’re moving to another state and need help from an attorney in that state .. or maybe there’s an estate planning attorney in the extended family now, and they want to use that person instead.

This also might happen because my personality or our office policies aren’t a good match for someone, or because we made a mistake that’s caused someone to lose confidence in our office. (I wish I could say that we’ve never made a mistake – but anyone who tells you that is lying, and I’d rather be an honest person who makes mistakes than a liar.)

Often, the people who are seeing a new attorney are worried that they’re going to offend me or hurt my feelings by going to another firm.

As a general rule, it won’t hurt my feelings. I don’t always have my “attorney” hat on – the rest of the time, I’m a client just like everyone else. I pay other attorneys to do legal work for me because, in the (alleged) words of Abraham Lincoln, “he who represents himself has a fool for a client.” I have a doctor and a dentist and interact with various other professionals in the course of my own life – and I know how it feels when I have to drive a long distance to take care of a simple matter, or if it feels like I just don’t see eye-to-eye with the other professional or their staff, or if I just feel like my needs have changed.

When I’ve only met with a client once (or never, and I’m just storing the file), I’m not going to take it personally, and neither does the staff in my office. The coming and going of clients and files is part of the natural flow of business – every month we get a few people who want to switch to our firm, and a few people who want to go somewhere else.

If I’ve worked with a particular client enough to really get to know them and like them as a person then yes, I’d feel bad, but I would still want that person to have representation they’re happy with versus sparing my feelings. I’m a professional, and nobody said that I’m entitled to have things go my way all of the time.

am interested in the larger trend – if we consistently lose more files than we gain, for example, something is probably seriously wrong with what we’re doing – but at the individual level, we understand it’s not personal – unless it is, and then it’s a really good idea for you to switch firms.

So if you want or need to go somewhere else, there’s no hard feelings on our end. You’re welcome to come back someday if you want to – and if you don’t, we hope things work out well for you. There are two other, slightly more cynical, reasons I don’t do free consultations. The first is that there are some people in the world who have a lot of time on their hands, and as a result think their time isn’t valuable. These people also seem to think that my time isn’t valuable, either, and that it’s a good idea for us to spend a few hours talking about the vague possibility that at some point in the future they might potentially think about changing their trust, and/or putting together an estate plan. I’m really not interested in meeting with people who don’t think twice about meeting with 5 or 6 different attorneys (and burning up 10-12 hours of their time, and the attorneys’ time) before they’re even serious about planning.

The second is that once I’ve met with someone and discussed their situation, even in a “free consultation”, I am limited by the attorney ethics rules with respect to how I can interact with that person in the future. If, for example, someone comes to meet with me because they think they might be involved in a trust dispute and want to talk that over, and I discuss their circumstances with them, I will never be able to represent a different party with respect to that dispute, because I’ve already learned confidential information from the first person. Once I meet with that first person, I’m effectively disqualified from ever working on that matter for someone else, even if the first person doesn’t hire me. I think it’s only fair that I get paid for at least a little bit of my time if I’m going to agree to be permanently disqualified from ever working on a case in the future. One relatively common question our receptionist gets on the phone is “Can I have a free consultation?” Our firm policy is that we do not do free consultations.

I understand that people don’t necessarily know what they want or need before they learn more about estate planning that people may want to get to know me before they commit to spending money to talk to me.

We do offer estate planning seminars in our onsite classroom where prospective clients can hear me speak for an hour or two, get an introduction to estate planning, and ask general questions in a public setting. This way, I can explain basic estate planning and answer common questions in a way that helps 20 or 30 people at a time, instead of 1 or 2 at a time.

I don’t do free consultations for several reasons. The biggest reason is that I have found they’re often a waste of my time – and I think that expectation that someone’s going to get legal advice for free creates an environment where a lot of clients’ time is wasted, too.

I saw a job posting recently that does a pretty good job of illustrating why I don’t think it’s likely that some other law firm’s “free consultation” is likely to be as helpful as it sounds. The law firm (a local San Jose firm, with remote offices in other Bay Area cities) is looking for another attorney to work in their offices. Here’s how they describe what they’re looking for:

We specialize in Family Law, Bankruptcy and Estate Planning. With 9 offices located throughout California, we are in immediate need of excellent attorneys who can sell and close new business. You will be responsible for conducting phone screens of new leads with the goal of setting face to face consultations in one of our 9 offices located throughout California. In addition, you will be responsible for conducting face to face consultation appointments with the goal of signing new clients! You will be an important part of lead conversion for the firm. If you have your law degree, enjoy working with people and have strong sales skills, then you should apply!

Judging from this job ad, I get the impression that if someone calls this law firm with questions, their phone call will be handled by an “attorney” acting in essentially a sales role, whose task is to “set a face to face consultation”; and then to conduct a face to face consultation appointment with the goal of signing up a new client. The ad goes on to say that they’re especially interested in attorneys with a “strong sales background.”

When you think about getting legal advice, do you think of yourself as a “lead”? Would you like to be “converted” by a person who’s been hired to “sell and close new business?”

When you look in the yellow pages or on the Internet and see someone offering “free consultation”, you should consider the possibility that the “consultation” you’re going to have will be a little like having a “free consultation” at a car dealership. Hey, those guys down on Auto Row will answer your questions all afternoon – not because they’re giving you a “consultation”, but because they’re giving you a sales pitch.

Do you suppose that a person who goes to a “face to face consultation” at a firm like this one is ever going to walk out of their appointment having been advised that their existing estate plan is just fine, or that they don’t need a complicated plan, or that they’ve got nothing to worry about?

Law firms and attorneys need money to survive. I’m not going to pretend otherwise. But if you work with a law firm that only gets paid when they talk someone into having new documents drafted or having documents filed in court . . what do you suppose the chances are that they’re going to find a reason to tell you that you need to have some new documents drafted, or that you’re going to need something filed in court?

Our conceptual model for appointments is that we’re like a doctor’s or a dentist’s office – if you go to your doctor or your dentist for a checkup, or with questions about a medical or dental issue you’re experiencing, your doctor or dentist is going to charge you for an office visit. In many ways, the best possible outcome for that doctor’s appointment or that dentist’s appointment is for you to learn that you don’t have something to worry about, that everything’s fine, or that you have a minor problem that can be solved relatively quickly and inexpensively.

When I switched from “free consultations” to “paid consultations”, I found that what I really like about paid consultations is that during my appointment with someone, I’m free to focus entirely on what’s going to be the best approach to solving their problem, whether or not it means I’m going to do some extra billable work. When I used to do “free consultations”, I found myself trying to predict, a few minutes into the appointment, whether or not there was really any billable work to do – and if there wasn’t, I had a strong motivation to get the client out of my office so I could move on to billable work. If there was work to do, the focus of the meeting often turned into trying to convince the client that they ought to have work done – which I found to be somewhat unnatural and unpleasant for the clients and for me.

If I spend all day, every day, having paid consultations where I either tell people (honestly) that their documents and estate plans are fine, and that no changes are needed, or drafting simple documents during our meeting which can be signed immediately, my office will run just fine. We’ll pay the rent and our employees and life will go on.

If a “free consultation” firm spends all day, every day, having free consultations where they tell people that they don’t need new documents, or that they need simple changes that can be completed during the meeting .. how long do you suppose that firm can stay in business?

How much of the fees charged to clients who do have work done are effectively subsidizing the clients who had “free consultations?” If you do need to have work done, do you want to pay for other people’s consultations, too? If the other people aren’t paying, and the attorney is getting paid, where do you suppose that money is coming from? If you’d like to see the documents filed so far in the Michael Jackson probate matter, here they are In brief, Michael Jackson’s parents are asking the court to appoint Katherine Jackson (Michael’s mother) as guardian of his three children, as administrator of his estate, and as a special administrator to immediately assume control of his assets.

The probate petition is drafted as if Michael Jackson didn’t have a will; supposedly, an attorney has an original will signed by Michael Jackson which will be filed for probate. In California, a person in possession of a decedent’s will has 30 days from the death to deposit the will with the superior court in the county where the decedent lived. Clients frequently ask “Can I change my living trust by crossing things out and writing in new parts? The California Court of Appeals answered that question last week: not if you want your changes to stick.

In Cory v. Toscano, the person who created the trust gave “(a) To Elaine [last name omitted here for privacy] the balance remaining from the sale of my real property in Los Banos . . .”

At some later point, the creator of the trust apparently changed his mind, adding in his own handwriting the notation “^ 25% of” to the paragraph, so that the changed version said “(a) To Elaine, 25% of the balance . . .” The handwritten changes were dated and had the initials of the trust’s creator.

It’s no surprise that after the trust creator died,  Elaine, whose inheritance was cut by 75%, wanted to challenge the modification to the trust. Elaine’s attorney filed a special petition requesting a court ruling on the question of whether or not the handwritten changes to the trust were protected by the trust’s “no contest” clause. The Court of Appeals ruled that the handwritten changes were not protected by the no contest clause – meaning that Elaine can challenge whether or not they were an effective modification to the trust. If Elaine wins her challenge, she gets the full value of the Los Banos property. If Elaine loses her challenge, she gets the same 25% she would have received if she hadn’t brought her challenge. She’ll have to pay attorney’s fees for her challenge – but it looks from public records like the property is worth at least $800,000, so she’s balancing spending a few tens of thousands of dollars against potentially recovering $600,000.

What can we learn from this case? The first lesson is that handwritten, informal changes are likely to cause problems. The second lesson is that piecemeal amendments to trusts are invitations for problems – even if the trust creator had asked his attorney to formalize this change, it would have been obvious to Elaine that her $800,000 inheritance just turned into a $200,000 inheritance; and the change to the trust that reduced her inheritance wasn’t protected by the no contest clause.

In California, heirs and beneficiaries are entitled to a complete copy of the “Terms of the Trust” – this includes the original document, and any amendments. It does not include previous versions of the trust if they have been entirely replaced by a restated trust. If your trust document (and amendments) show a series of changes, where some beneficiaries’ shares grow or shrink, you should know that the beneficiaries will eventually see all of the different versions. Making the changes in small discrete steps makes it tempting for a family member or friend to challenge “just the last change” and ask a judge to go back to an earlier version of the trust that’s more favorable to them.

My office practice is to avoid partial amendments whenever possible – the small amount of money saved by not restating the document is tiny compared to the potential financial and emotional burden on beneficiaries and successor trustees when all of the piecemeal amendments are eventually revealed after death. If the trust had been “amended and restated in full” to match the creator’s wishes, it might be that Elaine would never know about the $600,000 she didn’t get, she would have been happy with her $200,000 gift, there would have been no lawsuit, and the property would already be sold.

By saving a few hundred dollars in legal fees or a trip to the attorney’s office, the trust creator has now caused what must be approaching a hundred thousand dollars in legal fees for this fight, and years of delay in estate administration. I ran across an interesting question today – is a California probate necessary when someone dies as a resident of another state, but they have an account in a California bank?

If the decedent used a revocable (“living”) trust, and changed the title on the bank account to reflect trust ownership – no problem, no probate is required.

If the decedent used a revocable trust but didn’t change the title on the bank account to reflect trust ownership, then it may be possible to use a petition under California Probate Code Section 850 (a “Heggstad petition”) to get control of the account without the delay and expense of a full probate.

If the decedent didn’t have a revocable trust and the balance in the account is less than $100,000, then the other-state executor or beneficiaries can wait until 40 days after the death, then use a small estate affidavit to collect the funds.

If the decedent didn’t have a revocable trust and the balance in the account is $100,000 or more, then an ancillary California probate will be necessary, including all of the traditional probate procedures and formalities. This is the worst-case scenario; I usually tell people that a probate in Santa Clara County will take approximately a year to complete, and 18 months isn’t surprising. A probate for a single asset like a bank account will be able to move quickly through the inventory & appraisal stage, since there isn’t much work to do, but there’s still a mandatory waiting period for creditor claims, and the delays inherent in scheduling multiple mandatory court hearings.

As a California resident and a California attorney, I’m embarassed that our state does this to people from other states; I don’t think it’s fair or reasonable, but that doesn’t mean it’s not the law. What’s even worse is that this feature of California law isn’t well known, and isn’t likely to be known by residents of other states, or even by attorneys in other states who haven’t run into the issue before. So it’s a problem that will surprise people over and over again.

It’s also a reminder to keep on top of little details with respect to bank accounts and estate planning. In this case, the failure to (a) use a trust, (b) designate beneficiaries on the account, or (c) move the account out of California is likely to cost the beneficiaries a few thousand dollars and months of delay while the probate proceeding occurs. I’m sure that’s not what the decedents intended, but it’s what they got. A recent post discussed the problem created by estate plans that aren’t updated to take advantange of recent changes in tax laws – or were never drafted with actual human beings in mind, just the tax code.

Specifically, it’s pretty common for a living trust for a married couple to mandate that the trust property be split into two different trusts upon the death of the first spouse. This is done partly to protect the estate from estate tax, and partly to make sure that some of the property will be distributed according to the wishes of the spouse who passed away.

This sort of planning is important if there’s enough property to worry seriously about estate tax; or if there’s a significant chance that the surviving spouse will frustrate the original estate plan.

On the other hand, there are a lot of families where there’s no serious risk of estate tax, and where the second spouse either wants or needs the flexibility to use/control all of the property .. or where the second spouse reasonably wants or needs to change the original distribution plan. (For example, if there are two or three children, and one of them quits their job or moves cross-country to care for the ailing surviving spouse, it’s not uncommon to see a disproportionate distribution of property to that child who made a big sacrifice to provide care and support for the parent.)

A well-drafted estate plan can include flexibility to allow the surviving spouse to allocate property between the A and B trusts after the first death. This isn’t necessarily what you’ll get from a trust mill, or from an attorney who isn’t interested enough to spend a few hours talking to you to understand your situation – but it is certainly possible. Two common approaches are called a “disclaimer trust” and a “Clayton election”.

I think this sort of planning is very important where, as now, it’s tough to know what the estate tax exemption amounts are going to be, and what the family is going to look like, upon the first (and second) deaths.

A recent California court decision illustrates the importance of reading carefully and paying attention, even when signing apparently harmless documents.

In Hogan v. Country Villa Health Services, a California appellate court enforced an arbitration clause in admission documents for a skilled nursing facility, signed by an elderly woman’s daughter upon admission. When the elderly woman later died while a patient of the skilled nursing facility, her family wanted to sue for wrongful death, eder abuse, and violation of patient rights.

The skilled nursing facility asked the court to rule that the family was forced to bring their elder abuse claim before an arbitrator instead of to a jury, because of the documents signed at the time of admission. The family argued that, even though the daughter had a statutory Heathcare Power of Attorney form signed by her mother, the mother had not authorized the daughter to waive her right to a jury trial in a real courtroom.

The Appeals Court held that the California statutory Advance Health Care Directive form (see Probate Code section 4701), as it was signed by the mother, was sufficient to give the daughter the power to agree to the arbitration agreement.

The unfortunate result is that the elder abuse claim will not be heard in a public forum – even though it’s likely that neither the mother nor the daughter had any idea that was a potential outcome when they signed the documents.

This is an important reminder to always read what you sign – and that it’s helpful to get assistance from someone who can advise you about unexpected consequences, such as the waiver of the right to a trial – because sometimes simple forms have complicated, unintended consequences. A common questionI encounter concerns the administration of a joint trust after the first spouse has died. In California, a typical living trust estate plan will take the form of a joint trust, which splits into two (or three) subtrusts when one of the spouses passes away.

The typical model is that the property that belonged to the person who passed away should be transferred into the “B” or Bypass trust. In some circumstances, another trust – referred to as the Q-TIP or “C” trust – will also be funding with some of the property from the person who passed away.

The other trust – the “A” trust, also known as the Survivor’s trust, holds the property of the spouse who is still living.

It’s not unusual for the surviving spouse – especially if they didn’t pay attention during the estate planning process, or if they used a trust mill or an attorney who couldn’t be bothered to explain the estate plan which was developed – to be surprised to learn that they’re obligated to take half of the property they’re accustomed to thinking of as “theirs”, and to move it into a new bank account or brokerage account.

(The exact details of the split between the A, B, and maybe C trusts depends on the property you own, how title was held (separate property versus community property), and the terms of your trust, so it’s not possible for me to describe exactly what to expect without actually reading your trust and understanding your property situation.)

In any event, unless the joint trust has been specially drafted to preserve flexibility at the first death, the trustee of the trust – typically the surviving spouse – is required to move assets into the bypass trust.

Why is this required? Because the different trusts – A, B, and C – are treated differently from a legal and from a tax point of view. For example, the B and C trusts are typically distributed according to the rules created by both spouses together; while the surviving spouse typically has the power to give the property in the A trust to anyone they choose.

In practical terms, this is most often an issue where the surviving spouse and the spouse who passed away had different ideas about who should receive their property – often because the surviving spouse remarries, or because this was a second marriage for one or both of the partners, and some of the children weren’t the biological offspring of both partners.

What happens if the bypass trust isn’t funded? The trustee – either the surviving spouse, during their lifetime, or the successor trustee – may face a lawsuit from frustrated beneficiaries, who are angry that their inheritance has been taken away from them or mismanaged.