Brian's Blog: Thoughts on Estate Planning, Business, Asset Protection, Family & California Life

Are We Experiencing A Second Great Depression?

My wife and I had dinner with my grandmother not too long ago. During the course of our meal, she asked me how business was going. I told her that things were good for us, but that a number of friends and clients were experiencing tough times.
 
Then she said, "I think we are in a depression."
 
At 92 years old, my grandmother has a particular understanding of the word "depression" that most of us cannot fathom. It means struggle, fear, and broken dreams on a gigantic scale.
 
As I responded over dinner, I don't think we're headed into a depression. Though bad, the numbers I see simply do not suggest that level of decline. 
 
But what if my grandmother is right?  What if we are in the middle of a prolonged economic downturn -- a Second Great Depression? 
 
We have to remember that after declining in the 1930s our economy grew like crazy (in real dollars). To be sure, the economy had ups and downs during those subsequent years.  But it's no exaggeration to say that America was the most prosperous country on Earth after the Great Depression.
 
Why was that? 
 
I believe that our country has thrived over the last 60+ years primarily because of certain competitive advantages. Chief among those was (and is) the ingenuity and perseverance of our people. Another advantage was (and is) the wonderful reality that in America a person can more fully reap the rewards of the intelligent risks they take.
 
No economic slump -- not even a Great Depression -- can by itself eliminate these competitive advantages. A free country full of creative and industrious people incentivized to take smart risks is hard to keep down.
 
In my view, the only thing that could dim a bright future for us is our own panic and overreaction. That's because fear could lead us to adopt "solutions" that actually make the problems worse. Although effective public policy certainly has an important role to play, I don't think it will be the primary cause of recovery. (In fact, bad public policy could be the primary cause of the next downturn!) 
 
As a small business owner who feels the ebb and flow of our economy quite acutely, I worry more about the long-term burdens and disincentives created by politicians than I do about whether America has the "stuff" to rise again.
 
What do you think?

An Unfortunate Probate

Last Friday, after nine months of court filings and procedures, our office completed a probate.  What makes this case especially unfortunate is that the person who died actually had an appointment with us to establish a living trust a couple months prior to his death.  The week before his appointment he called to postpone.  His reason?  He didn't feel well.  Despite our best efforts, he was never able to reschedule.  He died leaving a big and expensive mess for his family.

For those who don't know, probate is what ordinarily happens to an estate whenever someone dies with real estate or more than $100,000 in probatable assets (e.g., a brokerage account), provided they don't own those assets in an up-to-date living trust.  It's basically a lawsuit that your estate files against itself, with your money, for the benefit of your creditors.  On average, it takes about 12 to 15 months in California to probate an estate.  The cost is roughly 5% of the gross value of the estate. 

Probates are fun and lucrative for attorneys.  They are nothing of the sort for families.  My hope is that no one reading this post will ever put their family through a probate. 

A well-designed living trust protects you if you become incapacitated and your family if you pass away.  If the trust is kept current, you can have meaningful peace of mind knowing you did the right thing for those you love.  If you spend the money to put a quality trust in place, it will keep them from having to go to court.  It can even protect them from losing their inheritance to divorce, lawsuits, creditors, immaturity, and unnecessary estate taxes.  

None of those protections are available if you wait too long. 

Please don't put off this critical planning.  If you did your planning a while ago and haven't heard from your attorney in the last five years, it's time for a review.  There have been significant changes in the law that may have invalidated some of your planning.  A bad trust is sometimes worse than no trust. 

We'd be glad to meet with you without charge, as a reader of this blog, to start a plan or review an old one.

What Is Your FDIC/SIPC Coverage? (How Safe Is Your Money?)

I've gotten a number of requests for information about the scope of FDIC/SIPC coverage. 

The FDIC protects you against the loss of your deposits if an FDIC-insured bank or savings association fails.  FDIC coverage is limited to certain dollar amounts (see below). 

The SIPC program is quite different in that the government insists it's not really insurance.  Subject to certain limitations, SIPC will actually work to return your cash, stock and other securities if they go "missing" because your brokerage is closed due to bankruptcy or other financial difficulties.   

With respect to either program, how you would benefit depends on your particular facts and circumstances.  This blog entry will point you to the resources you need to have the confidence you seek.

FDIC:  If you are interested in calculating your FDIC coverage, you can find everything you need by clicking the following link to the FDIC website.  You'll see that in some circumstances, having an account in a living trust can multiply your insurance coverage. You'll also see that thanks to the law President Bush signed on October 3, 2008, the basic limit on FDIC coverage has jumped from $100,000 to $250,000 per depositor.  The $100,000 limit will return on January 1, 2010.

In case you're wondering, the FDIC does not cover credit unions.  Fortunately, that's not a problem because another independent federal agency, the NCUA, insures participating credit union deposits on precisely the same terms as the FDIC.  Click the following link to go to the NCUA website and calculate your coverage if you have deposits at a participating credit union.

SIPC:   If you want to know how the SIPC protects you, click on the following link to the SIPC website.  You'll see that if the SIPC cannot get your property back after a brokerage goes bankrupt, it will supplement what it can get for you up to $500,000 for securities and $100,000 for cash.

© 2008 Brian D. Wyatt, A Professional Corporation (All Rights Reserved)

Five Things Parents of a Special Needs Child Must Know about Estate Planning

If you have a special needs child, there are some things you absolutely must know about estate planning. First, failing to plan will jeopardize any needs-based government benefits your child receives. That’s because California law (i.e., the laws of “intestacy”) will determine how much your child gets from your estate. Think of everything you own going in shares to all of your children, including your special needs child. He or she will suddenly have a lot of assets counting against the SSI and Medi-Cal limits.

Second, your best planning option will likely be a revocable living trust that takes care of you and your dependents while you are alive and then directs your special needs child’s share into their own special needs trust if you pass away. A correctly drafted special needs trust will not only preserve your child’s access to benefits, it will also ensure those needs that aren’t covered by government assistance are covered. If appropriate, your child will travel, experience cultural events, play sports, have better transportation, receive better care, and even have cable TV. Who can live without cable TV?

Third, don’t think that leaving everything to your typically achieving children will solve everything for you. Nothing causes more tension and destroys family relationships faster than forcing one set of children to take care of a sibling, especially one that requires particular care. A special needs trust can provide the structure for your whole family to live in harmony after you are gone. Plus, if you leave funds to your typical achievers expecting them to care for your other child, know they could lose that money in a divorce or lawsuit or to creditors. If they die before your special needs child does, the money you leave them may go to their beneficiaries and be unavailable for the special needs person.

Fourth, remember that other family members could end up leaving money to your special needs child as well. For example, if you died before your parents, any money they were planning to leave you could end up going under their plan (or by law) to your special needs child. That’s likely to be just as risky as if you left the money to your children "free of trust." In other words, make sure your parents (and other family members) know they should name your child’s special needs trust as the beneficiary and never give anything outright to the child.

Fifth, and this is where it can get pretty complicated, make sure that the special needs trust is designed to receive any income from qualified retirement accounts (e.g., IRAs and 401(k)s) and any proceeds from life insurance. There are some pretty hairy tax issues to work through, especially with respect to those IRAs and company retirement plans.

We do special needs planning in our office. Our goal is to make it as easy as possible for our clients, knowing that they (like any parent) have very busy lives. If you know someone with a special needs child, we would love to help. In addition to doing their vital estate planning, we can connect them to some great financial planners who specialize in ensuring that special needs beneficiaries have what they need to thrive.

© 2008 Brian D. Wyatt, A Professional Corporation (All Rights Reserved)

Why Does the Cost of an Estate Plan Vary So Much from Attorney to Attorney?

People frequently ask me, "Why does the cost of estate planning vary so much from attorney to attorney?"  It's a good question. 

Many folks have become convinced that one living trust is pretty much the same as another.  The only difference, they think, is price. 

The truth, however, is that all living trusts are not the same.  But the misperception that they are has affected how most attorneys work.  It has also affected what they charge. 

And there is real pressure to charge less.  Unfortunately, the only way for an attorney to do that is to ratchet up the volume of documents they produce each week, shoe-horn their clients into one-size-fits-all plans, avoid focusing on quality, and neglect the follow-on services and communication necessary to make sure those plans actually work when they are needed. 

Without knowing it, most estate-planning attorneys have become little more than sellers of pre-printed stationary.  To one degree or another, they have stopped practicing law and given in to all of the misinformation that's out there about living trusts. 

But I did not go to law school to learn how to sell you a stack of paper with generic legal writing on it.  I became a lawyer to make a meaningful difference in my clients' lives. 

After all, your estate plan is how you tell your family that you love them for the last time. If your plan creates a big mess for them to deal with, what does that say to them about your affection?  And what does it say about your lawyer? 

That's why we put so much effort into creating the highest quality estate plans for our clients.  More importantly, it's why we build a lifelong relationship with them.  We want to be there for their loved ones if our clients become incapacitated or pass away.  Our clients love that about us, and we appreciate them for caring so deeply about their families.

Sadly, I only know a few estate planning attorneys who still practice like we do.  (What we charge for our services is very competitive with these excellent lawyers.) 

At the same time, I review a lot of trusts put together by those attorneys who have become nothing more than document sellers.  People typically bring these trusts to us because they haven't heard from their lawyer in more than 10 years.  They suspect, and rightly so, that their plan no longer fits their lives, their families, and their finances. 

That's bad.  But it gets worse.... 

Their plans also haven't kept up with the law.  If they become ill, new privacy laws will prevent their successor trustee from taking care of them.  (That means a court will have to declare them incompetent in a public hearing and, sometimes, even establish a costly conservatorship.)  Plus, their decade-old estate-tax planning is horribly inflexible and based on complicated formulas that will make the surviving spouse's life miserable.  They will have no ability to reassert control over their estates should they recover from an incapacitating illness.  The inheritance they leave to their loved ones could be lost to lawsuits, divorce, creditors and unnecessary estate taxes.  (It doesn't have to be!)  Their medical powers of attorney may have expired.  Their assets will go through probate because they haven't been properly put into their trust.  I could go on and on about how document-seller trusts end up going bad over time.

If you have an old estate plan, please don't go to a document seller to get it "redone."  You'll just have to have it "redone" again in about 10 years by a completely different lawyer, assuming you are alive and have legal capacity to make changes at that time.  The process of constantly starting over will probably cost you more over the long run than hiring a lifelong advisor would.  And the planning won't be nearly as good.   

If you want the latest and greatest planning, if you want it to work when it's needed, if you want to save money over the long run, if you want the attorney you've chosen to be there for your family when you can't be, and if you want real peace of mind, find a lifelong advisor whom you like -- whom your loved ones will like -- and make the investment.  You and your family are worth it. 

© 2008 Brian D. Wyatt, A Professional Corporation (All Rights Reserved)