Wednesday, July 29, 2009

A Thought on Health Care Reform

I'm going off-topic here, but I want to add a quick thought to the national debate on health care "reform" (whatever that will mean). The Left is insisting on full coverage for all Americans, seemingly without regard to cost, with a "public option" a must. The Right is just as insistent that only "free market" solutions are acceptable, making all kinds of noise about "rationing of care".

I'm certainly no health care expert, but I do know that paying for a full family plan is awfully expensive (ours is now over $1,000 per month). On the other hand, having undergone extensive (and expensive) treatment for a serious illness, I sure do appreciate having had coverage. I also believe it is tragic and untenable that 50 million Americans (give or take) have no health insurance.

While I don't believe health care is a "right" to the same extent as basic Constitutional freedoms, I do believe that we' d be better off as a society if all citizens had at least fundamental basic coverage that would spread the cost and the risks amongst the entire population. However, people would have to understand that unless we want to break the bank, not all types of treatment should be covered under the "basic" plan. People would be free to purchase additional coverage (or keep their existing coverage), and could always go out-of-pocket for any treatments not covered by the basic plan.

Of course the "wealthy" would maintain access to more (and possibly better) care than their less well-off neighbors, but at the very least such basic coverage would allow everyone to have fundamental health care that might remove much of the burden from the Medicaid system and reduce the use of hospital emergency rooms as the "primary care" provider for so many of the poor.

Poor Planning Results in Family Discord

I've been retained to work on an estate plan for a single man who has amassed an estate in excess of $10 million. Much of his wealth is the result of the sale of a business he had founded, while a portion is derived from an inheritance from his father who died about ten years ago.

Over the years, my client had periodically worked with his brother and father in the father's business, while the brother had worked with the father his entire adult life. Prior to his death, the father had made some equal lifetime gifts to both sons. When he died, my client's father's estate plan provided an equal distribution of the father's assets to each of his two sons (the father was a widower at the time of his death).

The father's decision to treat each son equally -- which he must have believed was the "fairest" result -- led to a permanent rift in his sons' relationship with each other. My client's brother believed that because he had spent his entire career working in the father's business, then he was "entitled" to a larger share of dad's business assets. While my client doesn't agree with his brother's analysis, he told me he would have understood had his father left more of his assets to the other son.

As I see it, the father's biggest mistake was failing to have an honest and open conversation with his sons about the father's intentions regarding his estate. Unfortunately my client said that his father -- like far too many parents -- was secretive about his intentions, notwithstanding the significant impact his decisions would have on his family's future. While such a conversation might have been uncomfortable, such a discussion would have allowed dad and his two sons to lay all their cards on the table, and express their grievances and desires. A conversation may or may not have resulted in the father altering his plan, and may not have avoided the schism between his sons, but it would surely have given them a fighting chance to head-off the ultimately sad result.

Tuesday, July 21, 2009

A Fallen Hero

For NFL fans, Steve McNair was a throwback -- a gritty, tough-as-nails quarterback, and a great leader. Off the field, McNair was praised for giving back to the community through numerous charitable works.

Sadly, McNair's legacy has been forever tarnished by his tragic death -- killed by his 20-year-old mistress in a murder-suicide, as his wife and two of his children slept in the family home miles away.

Adding to the tragedy is the recent news that McNair died without a will, leaving his wife and four kids -- two of whom are from a prior relationship -- in a more difficult situation. Under Tennessee law, Mrs. McNair is entitled to only 1/3 of Steve's probate assets, with the remainder to be divided amongst the four children. If all the children are still minors, legal guardians will need to be appointed to administer their inheritances until they reach age of majority, which in most states is 18. Like most 18 years old, odds are that McNair's children will be ill-equipped to adequately handle what will likely be significant assets at that time, and they will surely be targets for scam artists and other predators. Also, because McNair's wife is not the mother of two of his children, their is a likelihood of tension between the interests of Mrs. McNair and her children, and the interests of Steve's children from his prior relationship. All of this will be subject to a public spectacle before the media hordes and an insatiable public.

For years McNair was one of the more highly paid athletes in the NFL, so it is likely he has an estate significantly in excess of the federal estate tax threshold of $3.5 million. Since McNair apparently had done no estate planning, 45% of his assets in excess of the $3.5 million threshold will be subject to federal estate tax, and a portion will likely be subject to Tennessee's own state estate tax as well. Depending upon the liquidity of the estate assets, it could be difficult to pay the taxes, which are due 9 months from the date of death.

Steve McNair's death has left his adoring fans in shock. Now his betrayed wife and children are left picking-up the pieces from Steve's failure to make even rudimentary arrangements to provide for an orderly transfer of assets to his family after his death.

Monday, July 13, 2009

Another Misleading Advertisement for "Self-Help" Legal Work

Last week I posted about the deficiencies of "do it yourself" estate planning. Today I heard a radio ad for a company that forms corporations to "help you protect your assets." The ad said, that while "we don't give legal or accounting advice," you certainly don't need a lawyer to establish your own corporation.

Well, certainly anyone can form a corporation in New York, and probably any state for that matter. The real question is, once the corporation is "formed" -- which I take it from the ad means that the corporation has been filed with the Secretary of State and the "customer" is provided with the basic "corporate kit" -- what then?

For many business law attorneys, the corporation is a little-used entity today. The limited liability company, or LLC, provides greater flexibility, and much better asset protection than a corporation. Understand that under the laws of most states, corporate stock is personal property that is attachable by the shareholder's creditors. So, imagine that you own 100% of the stock of your trucking business which is incorporated as XYZ corporation. XYZ Corporation in turn owns all of the business's assets such as vehicles, machinery and inventory. One day you have a party at your home (which is owned in your own name), and some inebriated party goer trips going out the door and breaks his neck. Because this person's cousin happens to be a high-powered lawyer, he is able to secure a judgment against you personally for $10 million. Even if you have a $2 million "umbrella" insurance policy, you're still $8 million in the hole.

Well, at least your business is protected, right? Well, not so fast. In most states, your judgment-creditor will be able to seize the stock in your corporation, fire you as an officer and director, and substitute himself in your place. Once in control, the creditor can liquidate the business's assets, or do anything else with the business that he pleases.

Had the business been established as an LLC, the laws in many states (including New York) provide that a judgment-creditor cannot seize the judgment-debtor's membership interests in the LLC, but is instead limited to the remedy of a "charging order" against any distributions made from the LLC to you as the member (as a caveat, we are now recommending that there be at least two members of an LLC, as at least 3 bankruptcy court decisions in other states have allowed creditors to liquidate assets of a single-member LLC, but would not have permitted such liquidation for a multi-member LLC). Since you would remain in control of the entity, you would stay in control of the entity's assets and can keep those assets at arms-length from your creditor, which may encourage a settlement for much less than the judgment amount.

So, I bet that corporation formation company will provide their prospective clients with a similar run-down of all the asset protection issues involved in selecting a business entity -- right?

Sunday, July 12, 2009

An American Classic

Last evening my wife and I had the good fortune of attending the New York Philharmonic's annual summer performance at Bethel Woods. For those who haven't been there, Bethel Woods is a magnificent performing arts center built on the Woodstock concert site. It is a treat just going to Bethel Woods to see the beauty of both the concert grounds and the natural surroundings.

As for the concert, the Philharmonic performed a number of well-known classical pieces from Carmen and Bolero. As the orchestra conluded with an encore of John Philip Sousa's Stars and Stripes Forever, the skies opened with a torrential thunderstorm. The thunder and lightning surrounding the ampitheater certainly made for a dramatic finish.

Wednesday, July 8, 2009

The pitfalls of do it yourself legal documents

Given the collapse of my beloved New York Mets, I haven't spent much time recently listening to WFAN. Scrolling the radio dial the other day, I came across Rush Limbaugh doing a commercial for For the uninitiated, LegalZoom allows people to create their own legal documents on-line.

In the ad, Rush describes how a friend told him that they created their own living trust at Legalzoom, and that the document looked almost identical to one prepared by a lawyer for another friend, but at a much higher cost. Sounds like a no-brainer, right?

Well, if all the lawyer did for the "other friend" was a "word processed" trust using a fill-in-the blanks structure, then the client did in fact overpay. But any estate planning attorney worth his or her salt will take the time to learn about the client's family -- the kids, grand kids, other family members, and what are the clients hopes, dreams and aspirations during their own lifetimes and the lives of their loved-ones.

We discuss with our clients the benefits of leaving assets in protective trusts for their children's lifetimes, which will protect the kids' inheritance from their "creditors and predators," including a divorcing spouse. Properly structured, such trusts can provide the child with access to the trust income and principal when needed. In my view, there is no real benefit to the traditional "outright" distribution of assets.

Also, we make sure that the clients' living trusts are funded with the clients' assets during their lifetimes; in fact, we have a full time "funding coordinator" on staff.

Finally, our practice features an ongoing annual maintenance program to ensure that our clients' estate plans stay current with the changes in their lives, changes in the law, and changes in our knowledge and experience.

Will our "up front" cost be greater than Legalzoom or the like? Well, sure. But an experienced and knowledgeable estate planning attorney can bring wisdom and guidance to the estate planning process that no computer program can come close to matching. And, when you factor in the costs of "death settlement" of an estate, the costs of the "inexpensive" planning compared to our comprehensive approach will, more than likely, no longer seem to be such a bargain.

In my view, on-line estate planning is suitable for those people who would never do any planning if they had to go see a lawyer. But for those who are serious about preparing a comprehensive and ultimately effective estate plan, there is no substitute for seeking appropriate counsel.

Thursday, July 2, 2009

Michael Jackson's Estate Plan

Every reporter or news anchor I have seen since the filing of MJ's will has breathlessly reported that the "King of Pop" has disinherited his father and his former "wife," Deborah Rowe. Well, that may or may not be true; the media doesn't understand that for all his other faults and flaws, Jackson had the good sense to create a living trust that is not required to be filed with the probate court. The living trust (named in this case the "Michael Jackson Family Trust") is where all the dispositive provisions regarding Jackson's assets are included. It is entirely possible (although unlikely) that the trust includes either his father or Debbie Rowe (or both) as beneficiaries. The filed will does not name any specific beneficiaries of assets, but is simply a standard "pour over" will that transfers any "unfunded" assets to the Family Trust after death.

Besides the pour-over provisions, the main purpose of the will here was to designate Jackson's preferred guardians of his minor children. Jackson's first choice as guardian was his mother, with his second choice being his old friend (and childhood idol), Diana Ross. It's hard to imagine any scenario in which the now 65-year old Ms. Ross would assume responsibility for these children in Jackson's mother were to die or become unable to be their guardian.