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Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.

Do you enjoy paying legal fees? I don’t . . . and I am one (a lawyer, that is, not a fee). As an attorney, however, I regularly witness situations in which a client (or perhaps a deceased client) attempted to save a few bucks on legal fees (at my expense, I guess) and succeeded only in creating a situation that cost the family many times what the fee would have been.

Ever heard the old expression “Penny wise and pound foolish”? It means, of course, that attempting to save money by cutting corners or “doing it yourself” may end up costing you more in the long run.

The most expensive plumbing job I ever paid for began one beautiful autumn Saturday. The leaves were golden, the sun was absolutely sparkling in a crisp blue sky . . . and the commode was running. Obviously the flapper-thingy wasn’t flapping and it would be a simple matter for a smart guy like me to fix it. First a trip to the Home Improvement Emporium for a left threaded tank wrench. Wouldn’t seat right. Next a trip to HIE for a polyvinyl noncorrosive self-seating throcket seal. Wouldn’t seal. Return to HIE for a new mop to clean the inch of water on the floor from the tank. Water continues to leak from tank. Elapsed time 8 hours, money spent $60. Monday, I paid a plumber $100 to fix the mess I made. Told me it would have been $50 if I had left it alone.

So I’ve made my point. I stay out of plumbing and Mack stays out of lawyering.

Next point: Be careful of what you read in columns (including this one). A client once read a Sunday newspaper real estate column written by a guy in California, and the client asked me if I REALLY knew what I was doing with a certain deed I was preparing. Seems the column made him very nervous. I explained that we were in Savannah not San Francisco.

Next point: Be careful of what you read in books and on the internet. It astounds me the number of people who believe that because Suze Orman says that a certain type of trust is a good/bad idea the lawyer/financial advisor/accountant they are paying must not know a thing if they disagree with Ol’ Suze.

Hint: California Real Estate Dude and Suze Orman have never met you, do not practice law/accounting/financial advising in Georgia or South Carolina, and they will be very hard (in fact, impossible) to find when things go leaky on you.

Next hint: Would you really attempt to diagnose yourself on WebMD after finding that funny lump? Or would you go see your doctor?

I am not suggesting you ignore columns (especially this one!), books, the internet, and talk shows. I find that clients who have made an effort to orient themselves are easier to work with.

I am telling you, however, not to let these sources become a “cost-saving” substitute for face-to-face time with a reputable advisor.

I am also telling you not to expect quality advice and services for free. The person you are seeking out, if truly qualified, will have spent years becoming an expert. Check them out and check their credentials.

Final hint: Buy the best advice and skill in a professional you can possibly afford. It will end up saving you a pile of cash in the long run.

Now for a good joke: It was a sweltering Sunday afternoon when the AC broke down. In a panic the family pawed through the phone book looking for a repair company. They called “Jake’s AC Service”.

Ring . . . ring. “Yep!”

“Is this Jake’s AC?”

“Yep. This is Jake.”

“Can you get right over here? It is boiling in this house, my wife has fainted, the baby is crying.”

“Yep.”

Old Jake rattles up in a 1980 truck about 45 minutes later and shuffles around to the back of the house lugging an ancient toolbox.

“Holy smokes! Looky there. That’s an Arctic 3A . . . haven’t seen one in 25 years.” Jake rummages around in his toolbox and retrieves an old rubber mallet and with the skill of a surgeon carefully selects a spot on the side of the Arctic 3A and taps it twice . . . exactly three inches from the top grating.

The machine instantly whirs to life.

“AMAZING, Jake!!” Dad exclaims. “How much do I owe you?”

“Hundred anna quarter.”

“ONE TWENTY FIVE!!??? FOR A 10 MINUTE SERVICE CALL!!???”

Whereupon Jake fixes Dad with a level gaze, sighs patiently, and says “I shoulda broken it out for you. $25 for the service call. $100 for knowin’ where to hit it.”

Filed Under: Coastal Senior, Miscellaneous Tagged With:

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Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.

Ladies, Is Your Husband A Cad?

The first Boomers are applying for Social Security! I distinctly remember – like it was yesterday – these same people saying “don’t trust anyone over thirty!” I guess it wasn’t yesterday, but more like ’68.

Guys, if burning your draft card was dumb then, applying now for early Social Security benefits might not be much smarter. Carelessness with matches in ’68 got you in trouble with the feds. Carelessly applying for early Social Security now could hurt your wife.

Here is my free legal advice for the month: Hang on, there, fellas and don’t apply for Social Security until you’ve read this article . . . which won’t be hard unless you’re almost up to the window at the Social Security office while you’re looking at this column.

A recent study at Boston College’s Center for Retirement Research has concluded that men are applying for Social Security benefits too early. That hurts a surviving wife because it will lower her benefits when her husband dies first (which is what the odds makers say will happen).

To understand why, you need to understand the math. At this point I’d like to ask the actuaries and accountants to take a break while I explain in English.

Social Security retirement is a mandatory retirement system for most US citizens. The size of your benefit depends upon how long you worked and how much you earned. The longer your work history and the more impressive your earnings, the bigger the retirement benefit. Remember all those payroll taxes you paid?

Mathematically, that earnings history is then reduced to a present value or lump sum. It then becomes a question of: How much retirement benefit will that lump sum pay for if you live as long as the fed’s actuaries say you should?

If you take a “normal” retirement benefit beginning at age 65, you might receive $1,000 monthly. If you elect to work longer, you might receive $1,200 monthly when you do eventually begin to receive a check. Why? Since the feds didn’t pay you during the years you continued to work, that lump sum on hand has gotten bigger. Also, the feds won’t have as many years to pay out.

On the other hand, you may think dropping out and beginning a benefit as early as possible (age 62) seems attractive. But in my example you might receive only $750 monthly. Why? Because the feds have to pay you longer.

If you are think you will not live much past 71 or 72, taking the lower early retirement benefit might make sense because $750 a month for ten years is better than $1,000 a month for 7 years.

But that is if you are single. If you are married and your wife (I’m talking to the guys, here) plans on living quite awhile, your early retirement benefit is not such a great idea. Why? Because the feds calculate your wife’s survivor benefit (what she will be paid after you die) as a percentage of your monthly benefit. Because you retired earlier, your monthly benefit was lower.

In fact, the Boston College study concluded that the survivor’s benefit for the widow of the early retiree was about 20% lower than the fellow who retired at normal retirement age.

So . . . are the early retiree husbands “cads” (Boston College’s term)? Or are they just ignorant?

Very cautiously the study tied educational level to later claiming of benefits. Of course, many things could account for that, including the possibility that the better educated brethren simply liked their jobs more and worked longer. However the Boston College study suggests that educational level could tie more closely to financial awareness.

As the Social Security “normal” retirement age starts inching up (which it is scheduled to do), the “early retirement problem” could get worse.

The Social Security Administration’s Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire. Unfortunately, none calculate spousal benefits. Based on the Boston College report, adding such calculators would be a good first step.

Also, bear in mind that none of this applies if you burned your draft card in ’68 and moved to Canada.

Filed Under: Coastal Senior Tagged With: , ,

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Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.

Happy 2008. Here’s another article on New Year’s resolutions. I’m not going to ask you to lose weight, eat less, drink less, read more, or exercise more. I am going to ask you to resolve to do three things (of a legal variety) that will do nothing at all for you . . . but make quite a difference for your family. Just three.

Resolution Number One. I WILL do a Will (unless I already have one less than 5 years old).

I am amazed by the number of people who sit before me and sheepishly admit they have no will, or have wills written when the Gipper was president.

The biggest excuse seems to be either “I just haven’t gotten ‘roun to it” or “I didn’t think I really needed one”. To the first I say, borrowing a Nike line, “Just do it” . . . I can’t do much more than that to a procrastinator other than try to scare him (not to death . . . remember, he doesn’t have a will).

Wills are important for a number of reasons. Avoiding intestacy (dying without a will) is usually a must. Most married couples want to benefit each other upon the death of the first. That won’t happen under intestacy because a share (at least half or more) will go directly to children. If there are no children or no surviving spouse, the state intestacy rules will determine who among the heirs “gets what and how much”.

Also, state statute may have ideas different than yours as to who should wind up your affairs. Further, by foregoing a will you might bypass many planning opportunities that could insure the protection of your property after your death.

There are plenty of wills available on the internet for just $100 or so. I’ve even seen some guy on TV advertising software for $69. Those options are better than nothing, I guess, but they are not worth more than what you paid for them.

I suggest you pay (yes, pay) an attorney to evaluate your situation and discuss your options. She may have some great ideas you missed surfin’ the web.

Finally, prepare a will if you love your family. I haven’t looked at my records, but I would not be surprised if I have earned more fees slugging it out between warring and hateful siblings and first and second families than I have earned writing wills. To the extent you leave a well-thought-out plan you may avoid The Family Feud.

Resolution Number Two. I will insure that I have an effective Power of Attorney.

Powers of attorney are incredibly important and often overlooked. A power of attorney involves a principal (you) appointing someone else as agent or attorney-in-fact (maybe a spouse or an adult child) to manage the principal’s affairs, especially if the principal becomes incapacitated.

Without a power of attorney, often the only solution is a guardianship or a conservatorship. Those are expensive and intrusive . . . and involve submitting yourself and your affairs to the supervision of a probate court.

Properly drafted powers of attorney are also important to enable gifting. By “gifting” I am not talking about Christmastime, I am talking about the ability to convey and re-title assets after your incapacity if that should make sense. Transferring assets often makes tremendous sense after incapacity.

Even a power of attorney that says “I give my agent power to do anything and everything I could for myself” does not authorize gifting. That is because agents under a power of attorney are called fiduciaries and are subject to state fiduciary law. Fiduciaries include trustees, executors and, yes, agents under a power of attorney. Fiduciary law says that unless the written authorization specifically and clearly directs otherwise, a fiduciary may not squander, transfer to others or transfer to herself the principal’s assets. That certainly covers gifting.

Of course gifting powers can be made subject to special restrictions. For example, “My agent must secure the written permission of at least one sibling before making any transfer”.

Resolution Number Three. I will execute advance health care directives and discuss my medical treatment preferences with my family.

I wrote here last summer that Mom and Dad have a harder time talking to the kids about end-of-life medical preferences than they did forty years earlier talking to the same kids about . . . uh . . . you-know-what.

If you value your preferences and you love your family, spell them out in writing and have The Talk. It will avoid much confusion, heart ache and recrimination later on.

Have a great New Year!

Filed Under: Coastal Senior, Miscellaneous Tagged With: , , ,

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Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.

Is your will from another century? Maybe even the first year or two of this century? If so, your older model estate plan may be getting poor mileage . . . and might even be unsafe to drive.

People typically update their wills and trusts for one of three reasons: Something personal has changed (a divorce, a marriage, a child joined Al Qaeda), an estate has changed (mother won the lottery, daddy invested in Enron back in ’01), or the law has changed (constantly).

Most people come to see me for the first two reasons, but very few come to see me because the law has changed. In both law and life in general, however, the only thing that doesn’t change is change. The law relating to estate tax has changed (much) since 2000 and my guess is will remain unsettled until after the next election cycle.

Here is a typical situation. A couple comes to see me with 1990’s “tax planning” wills that divide everything, using some formula, into two parts. One part called a marital or spousal share and one part called a family trust or credit trust. The couple may have had an estate of between $600,000 and $2 million when the will or trust was completed.

Everything in the couple’s life may feel the same and look the same, but things have changed. The law has changed. The surviving spouse may be headed for an unpleasant surprise. Here’s why.

First, you need to understand just a bit about how the estate tax works.

  • General rule: All estates are taxable at death unless an exception applies.
  • Exceptions:
    • Transfers to a spouse (unlimited in amount)
    • Charitable transfers
    • Transfers that are “sheltered” by what used to be called the “unified credit” and are now called the “applicable exclusion” amount. Those transfers could NOT be used for another type of exclusion. For example, a transfer to a spouse could not also count as a “sheltered transfer” under the unified credit. The “sheltered” transfers historically kept smaller estates from being taxed.
  • Sheltered transfers:
    • In 2000 the amount that anyone could shelter was $675,000; it had been going up consistently for a few years before that from $600,000.
    • In 2007 that number is $2,000,000.

How it works/worked: The year is 2000. Alex and Betty, a married couple, each have $750,000 in their own names ($1,500,000 total). Alex had a will that left everything to Betty. Alex died. Because Alex’s will left everything to Betty, there was no tax because of the unlimited nontaxable transfer to the spouse. However, none of Alex’s “credit” or “shelter” amount of $675,000 was used because everything was given to Betty by will. Alex wasted all of his $675,000.

Here’s the problem: While there was no tax when Alex died, Betty now has an estate of $1,500,000 (her $750,000 and the $750,000 she inherited from Alex). Let’s say Betty died later in 2000, when the credit amount was still $675,000. Her will said “leave it all to the kids if Alex has died”. Because Betty also had a $675,000 credit amount, then $825,000 of her estate would be subject to estate tax ($1,500,000 – $675,000). BAD planning. All tax could have been avoided.

How taxes were avoided. Enter the 1990’s “tax planning” will. Alex and Betty would each have wills that directed the executor to divide the estate into two shares. One share equaled whatever the “credit” or “shelter” amount was on the date of death ($675,000 if Alex died in 2000). The other share was the rest of the estate. The first share ($675,000) went to a trust that would NOT be meant to qualify as a marital transfer – that way Alex used his credit amount (usually the trust would allow income and perhaps some principal to be paid to the surviving spouse for her life). The rest ($75,000 in Alex’ case) would go to Betty. No tax.

Now Betty had an estate of $825,000 (her own $750,000 and the $75,000 inherited from Alex). Everything else was in the trust. If Betty died in 2000 she would have a taxable estate of only $150,000 ($825,000 – $675,000). A taxable estate of $150,000 was MUCH better than one of $825,000; and simple planning fixed the problem.

The Problem Is Getting Bigger. So far I’ve talked about $675,000 credit amount in 2000. As I mentioned, it is now at $2,000,000. If someone with an old 1990’s (or even early 2000’s) tax planning will dies in 2007 or 2008, up to $2,000,000 would go into the Credit Shelter trust (that may have all kinds of restrictions) and nothing outright to the surviving spouse. In Betty and Alex’s case, ALL of Alex’s $750,000 would go into trust, and nothing would go to Betty outright.

What made sense a few years ago, makes no sense now. Betty and Alex may want to redraft their wills.

Filed Under: Coastal Senior, Wills (or Not!) Tagged With: ,

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Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.

Down in the corner next to the obituaries sits the ad. The next day it pops up opposite the Opinions section. FREE SEMINAR! FREE LUNCH! PROTECT YOUR ASSETS! Then the ad goes on to scare the daylights out of you. How on earth could that dunderhead lawyer of yours have not given you such IMPORTANT INFORMATION?

The ad tells you that with a Living Trust you can –

  • Avoid Probate!
  • Avoid Triple Taxation!
  • Maintain Confidentiality!
  • Leave Your Estate To Those YOU love (and NOT –gasp- to those the State chooses)!
  • Manage Your Affairs If You Become Incapacitated!

Living trusts, revocable trusts, life trust, family protection trust. They come with different names. My favorite slang term is “The $3,000 Notebook”. If you have a black notebook with tabs in it containing a bunch of documents you don’t really understand for which you paid thousands after attending a free seminar – you may be the owner of a $3,000 Notebook.

A living trust is a trust that you set up (maybe jointly with a spouse) usually naming yourself as trustee. The trust says you can freely put assets in and take assets out. There will be provisions that detail how your estate (or whatever you’ve put in the trust) will pass when you do (pass, that is). If you have a big estate (say, north of $2 million) there should be some tax planning provisions in there. Of course, I’ve seen people with modest estates that have bought trusts containing tax provisions that would do Warren Buffet proud.

Look back at the list of commonly advertised claims above. I’ll take them one at a time. First, YES, you can accomplish all of those things with a living trust. But other than avoiding probate and maintaining strict confidentiality, you can also accomplish all of those goals with a will.

Probate is the process available in all states by which a court (in Georgia it is the Probate Court) supervises the collection of estate assets, the payment of creditors and final distribution of assets. It applies to “probate” assets only.

A bank account solely in my name is likely going to be a probate asset when I die. It’ll go to whomever I name in a will, or if I don’t have a will (meaning I’ve died intestate) to whomever the rules say, perhaps split between my wife and child.

On the other hand, a bank account that says “Pay Ann on Bob’s death” will be a nonprobate asset because it doesn’t matter what my will says or what the intestate rules say (Ann will get the bank account even if my will leaves everything to my child). Likewise, a living trust is a nonprobate asset because anything in it will pass without regard to a will or the rules of intestate succession.

Remember: Intestate means “without a will.” Which reminds me of the following encounter with a client. “I’m so sorry about your Daddy, Wanda. Did he die intestate?” “No, Mr. Mason, he died over in South Carolina.” Bad joke. Couldn’t help it.

In some states the probate process is a bit like a head-on collision with an 18-wheeler on I-95. Something you ought to try to avoid if possible. A properly drafted and funded living trust is a good way to avoid that (probate, not the collision).

Georgia, on the other hand, has a user-friendly probate process. By this I mean the probate process is often cheaper and easier than establishing and tending to a living trust. Often it just doesn’t make sense to set up a living trust simply to avoid probate.

Next claim: Avoid triple taxation. If you have an estate worth less than $2 million, you won’t have any estate tax (unless you gifted millions while you were alive). It doesn’t matter whether you have a trust or a will or nothing. If you have a larger estate, a living trust has NO tax advantage over a will. If you are worth more than $2 million why are you at a free-lunch-seminar?

Next claim: Maintain confidentiality. Fair enough. The probate process is public. You can go down to the courthouse and insist on reviewing an estate file if you’re so inclined. Most people don’t care.

Next claim: Leave your estate to those you choose, not to those the state selects. You can do that with a will. In fact, it is simpler with a will. The worst you can do is nothing, however. Remember, if you die without doing anything, the kids will get a cut along with Mama.

Final claim: Manage you affairs if you become incapacitated. True, a living trust can help. But so can a power of attorney at a fraction of the cost.

Last caution: Living trusts do nothing for asset protection. Zero.

All that being said, living trusts or revocable trusts can sometimes be useful. Extremely so, in fact. If your trusted attorney recommends a revocable or living trust and can give you some solid reasons to backup the recommendation, then by all means listen to her. She knows your situation better than someone who fed you a free lunch.

Bob Mason, certified elder law attorney by the National Elder Law Foundation, practices in Savannah, Georgia, and Asheboro, North Carolina. Email Bob at ram@masonlawpc.com or visit www.masonlawpc.com.

Filed Under: Coastal Senior, Wills (or Not!)