An Attorney Who Represents Himself…

Most of you are familiar with the old adage that an attorney who represents himself has a fool for a client. In that vein I bring to you an interesting case of a retired attorney from a Midwestern state who decided to draft and sign his own will. “Benjamin” died a Florida resident with no assets or monies to speak of except his home worth $400,000 that he had declared as his homestead. Before retirement, he was a practicing attorney from his former home state, he was not licensed nor did he ever practice estate planning law in Florida.

Benjamin knew enough about Florida law to understand that your homestead is not technically a probate asset and it is generally protected from creditors’ reach. As I will soon reveal, while Benjamin may have known the general rule, it doesn’t appear that he was aware of the exceptions to that rule.

Prior to his death, Benjamin ran up credit card debt exceeding $60,000, apparently believing that the credit card companies would be left out in the cold since his only major asset was his Florida homestead. Unsecured creditors such as bank credit cards may file a claim against the probate estate, but usually cannot attach Florida homestead if it is left to a decedent’s heirs as defined under the law.

Here’s where it gets interesting. Benjamin’s last will left 45% to his son, “Thomas,” 45% to his daughter, “Stephanie” and 10% to his church.

Thomas was named as the personal representative (executor) for his father’s estate, and opened the administration. Benjamin’s ex-wife, “Marilyn” who is also the mother to Thomas and Stephanie produced her divorce settlement agreement promising her $100,000 from Benjamin’s estate at his death. She made a claim for that amount against the estate assets.

Thomas sold the home, and deposited the $400,000 proceeds into an estate account. Against his probate attorney’s advice, Thomas immediately paid his mother the $100,000 due to her under the divorce settlement agreement. The creditors properly filed their claims for the $60,000.

Thomas’ probate attorney filed a motion to protect the homestead sales proceeds. The creditors filed an objection, since the homestead protection only applies to spouses or heirs at law. Since Benjamin’s will gave 10% to his church (an unprotected class of beneficiaries), the creditors claimed that up to $40,000 of the sales proceeds were unprotected (10% of the 400,000 sales proceeds) and therefore should be available to satisfy their claims.

Thomas asked his attorney if the $100,000 that he paid his mother in satisfaction of her divorce settlement factored into the equation somehow. The probate attorney informed Thomas that he should not have paid her claim in full, since hers is also a creditor claim that would have to be prioritized with the other creditors’ claims. The amount subject to all of the creditor’s claims totaled $160,000 (the mother’s $100,000 plus the $60,000 credit card debts).

The credit card companies were entitled to a portion of the $40,000 of unprotected monies and the mother was entitled to another portion. But Thomas distributed $100,000 to his mother. If his mother refused to refund her $100,000 payment, Thomas would have to refund money from his own pocket, or take it from his share of his father’s estate.

At the end of this mess, the church received nothing, and Thomas had to refund money to the estate to make everyone whole.

Many of these problems could have been avoided had Benjamin sought proper legal advice before drafting his will, and running up the credit card debt. Thomas also erred by paying his mother’s claim without first consulting with the probate attorney.

Situations like this are made even worse when individuals put a direction in their wills that mandate the sale of the Florida homestead with the proceeds divided between the beneficiaries. While homestead is a creditor-protected asset under Florida law, if a direction in the will requires the personal representative to sell the homestead then those proceeds are not protected at all, even if those proceeds are directed to heirs. In the case of Benjamin’s estate, there was no such direction. When there’s no direction to sell the home, and the personal representative does it of his own volition, then the proceeds are generally protected to the extent that they are to be distributed to heirs.

Believe it or not, situations like the one that I describe here are not uncommon. The law surrounding the descent and devise of Florida homestead is complicated. Moreover, the law surrounding the creditor-protected nature of a Florida homestead, and the sales proceeds therefrom, are equally confusing.

While Benjamin had a fool for a client, another euphemism that applies to his situation is that Benjamin’s limited knowledge as to Florida probate law made him dangerous.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Spendthrift or Risk Tolerance?

A client, “Alec” discussed imposing a third party trustee on his son “Terrance’s” inheritance, while leaving his daughter in charge of her inheritance without imposing a gatekeeper of any kind. Alec worried that the substantial sum he was going to leave his son would be squandered without proper supervision.

“Tell me about Terrance,” I asked. “Why do you feel it necessary to have an independent trustee watch over his investment and distribution decisions?”

Alec sighed, frowned slightly, then began. “He takes a lot of risks. Extends credit, and it makes me nervous that he’ll leverage whatever he receives from my estate when I die.”

“Why does it make you nervous?”

“I never bought anything other than my house that I couldn’t pay cash for,” Alec said. “Cars. Vacations. You name it. I didn’t buy it unless I had money in the bank first.”

“And Terrance?” I asked. “He extends himself often?”

“Yes. He owns four different businesses and went deep in debt to finance the acquisition and expansion of each.”

“Has Terrance found success?”

“Oh for sure!” Alec responded. “His restaurants got Silver Spoon ratings and are always booked solid, his other businesses have done equally well.”

“So it’s not so much that he is irresponsible with money then, is it?” I challenged. “To me it just looks like Terrance has a much higher risk tolerance than you do.”

“Yes, I suppose that’s true,” Alec said. “I’m just worried that one day he won’t be so lucky and it crashes down on him.”

“Are you sure that you want to impose a gatekeeper on Terrance’s inheritance while his sister won’t have any obstacles to using her inheritance from you as she sees fit? Won’t that cause Terrance to wonder how you felt about him? Is that the last words you want to leave to him?”

These questions seemed to hit home. “I guess that’s not such a good idea,” Alec pondered. “But it still worries me that he could lose any inheritance I leave him to creditors or business disputes with his partners.”

“We can protect what you leave him by creating a testamentary trust inside of your estate plan. He could name a co-trustee if a problem arises who can act as an independent trustee, but that would only occur if Terrance becomes subject to a lawsuit or other money problem.”

“That sounds like a good idea, but will he understand it?”

“Yes, we could certainly explain how it works. He’s in total control unless an issue arises, at which point he would want the protections.” I said.

Alec seemed somewhat relieved. “I didn’t know that was even possible inside of an estate plan. But Terrance and I have never even discussed my net worth or how I plan to leave anything to him.”

“Do you think if he knew what you had that he’d have expectations of lifetime gifts or other handouts?” I asked.

“Probably not.” Alec said.

“Well, it might be time to have a serious discussion with Terrance,” I suggested. “He’s a successful man who seems to understand business. He’s certainly had lawyers help him with bank loans and negotiating leases. Why not give him the benefit of the doubt and have an adult conversation with him about your worries and expectations?”

Alec’s situation is an illustration of many different real life stories I’ve heard over the years. Using credit is much different today than it was a generation ago. It still carries great risk, and there are ways to protect your adult children from losing the inheritance you might leave them should a business decision go bad.

Nevertheless, when your adult children act responsibly, it makes sense to discuss your concerns with them. If you create an estate plan that helps protect them, my suggestion is to discuss what you did and why you decided to include certain provisions.

Communication is key. Hopefully if you open up, then your adult children will also open up about their own concerns. That conversation might even lead to even better ideas to consider. These are not easy discussions but the families that are so willing to engage usually have successful outcomes because the expectations are clear.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Retirement Outmoded Concept

Have you ever wondered where the concept of retirement originated? A German/Prussian statesman, Otto von Bismark, engineered the concept of retirement in the 1870s not as some altruistic effort to assist his aging countrymen, but rather to stave off his Socialist enemies.

Von Bismark united Germany through wars and diplomacy, but was known as a strong-willed, outspoken, overbearing yet charming leader who sometimes displayed a violent temper. In 1871 von Bismark was raised to the rank of Prince, and was appointed as the first Imperial Chancellor of the German Empire, retaining his Prussian offices, including those of Minister-President and Foreign Minister. By then, even his closest friends realized that they helped put a demonic figure into power.

In the industrial age, retirement was a necessity because long, hard, manual labor required a strong, youthful body. The tasks were rote and dangerous, the days were endless and most jobs offered no chance for advancement. Factory owners literally worked their employees to death, replacing them with younger, stronger ones as need be.

The Socialistic movement promised to nationalize the industries and factories that made their owners wealthy beyond measure. Otto Eduard Leopid became Otto von Bismark as Prince of Bismark, Duke of Laurenburg. He was of a privileged background having been born into a wealthy, distinguished house. Clearly, von Bismark was not interested in seeing the Socialists achieve their goals. Accordingly, he built the first European welfare state to sway workers to his political philosophies and personal ambitions.

In 1883 he passed the first national health insurance legislation, the “Sickness Insurance Law.” The next year he passed the Accident Insurance Law of 1884 and in 1889 he created the Old Age and Disability Insurance Law. Interestingly, that law provided a pension annuity for workers who reached age 70, a very ripe age at the time, especially for most laborers. The accident and insurance program covered all workers, and the health insurance legislation split the costs between employers and employees.

Today’s economy and most workers are much different than those of 130 years ago. The United States and most of the Western world is no longer an industrial based economy, and increasingly industrial labor is robotically assisted. We’ve morphed into a service and experience economy, prolonging not only our life spans but our productive years.

Yet our government’s retirement programs have not changed all that much since the days of von Bismark. I believe that can be attributed to our collective mindset. We haven’t begun the discussion how the last third of our lives can be spent happily and productively.

Sure, no one wants to work in a dead-end job for their entire life. The advent of the microchip and today’s technology enables many to pursue their interests far into old age, including imparting their wisdom to those who seek it. The New York Times has run several stories in its business section highlighting those who retired from full time work only to become successful consultants later in life.

While not a path for everyone, I wonder why so many of us take as “the norm” a concept originated from a German baron out of political necessity to retain wealth and power.

The word “retire” means “to take out of service.” Is that a state of being that most of us want? I propose that while most desire relief from “the daily grind,” humans have an innate craving to be needed. From the mother who still wants to help her grown children, to the Fortune 500 executive who is forced to clean out his desk due to a mandatory retirement age, most of us still want to contribute somehow.

I would say that a vast majority of my clients who reside on the islands do stay quite active. From donating time to nonprofit organizations, to mentoring, to becoming consultants themselves, many remain active contributors to society well into their 80s and even 90s. Scientific studies support the proposition that remaining active helps keep us mentally and physically fit.

Outmoded government programs, built on a retirement mindset, don’t support and instead discourage continued contributions to society. It’s too bad, for example, that Social Security benefits are taxed for those who work past the age of receiving benefits. There must be a better way than penalizing those who don’t want to be put out to pasture and find personally satisfying ways to produce income for themselves and value for those they help.

Entrepreneurs will eventually discover the untapped resource of those into their “retirement years.” Hopefully, government policies, programs and tax law preferences will encourage this path by making it easier for those who so wish to contribute, reforming 19th century programs to 21st century opportunities.

 The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

What You Read on the Internet

I imagine that physicians become frustrated with patients who demand certain medications believing that it’s necessary after watching a television advertisement. You can’t turn on a news program without being bombarded with drug advertisements promoting miracle cures for ailments that I never even knew existed.

And don’t you just love the disclaimers? Overlaying the happy scenes of grandparents skipping along the beach with grandchildren, a serious narrative voice quickly says something like, “This medication may cause frequent vomiting, urination and even death! Stop taking the medication if you notice vision loss or blood trickles out of your ears…”

What this points to is a loss of context. Patients who ask for medications viewed on television typically don’t have a medical degree; they’ve not practiced medicine, and what little they know about whatever ails them they may have learned on the Internet or by watching television. That’s enough knowledge to make themselves dangerous.

I sometimes encounter this in my law practice. Suppose that a client is interested in forming a charitable remainder trust, so he researches it on the Internet. Which is fine. Learn all you can. I just hope that he realizes the information he’s pulled up may be dated, it may be taken out of context, and it may be so broad in scope as to be useless to the particulars of his situation. That’s what you hire a professional for.

Once in a while, a client will engage in debate over an aspect of estate planning law with me. They may have read something on the Internet, believing it to be relevant to his or her situation. Most of the time the information is relevant, but lacks context. Without context, the information or advice in the column may be way off base. That includes the columns that I write here.

What’s frustrating at times is trying to calm someone down from misinformation, or misapplied information. It’s difficult to convey all the knowledge that I’ve accumulated, including accounting degrees, a CPA license, a law degree, board certification and 27 years of experience in a few client meetings lasting a couple of hours or more.

And I suppose that’s today’s thought.

There’s a lot of information out there on the Internet. More so than at any other time in human history, you can Google just about any topic and find a plethora of information. Be aware of this, however – that information is usually not specific to your individual situation. It is mere information; it is not knowledge. Knowledge is accumulated over years of study and practice in any given field. Some practitioners are certainly better than others, and I recognize that it’s sometimes hard for the layman to know what level of expertise his professional has.

Is my physician the cream of the crop? Does he keep up with all of the new developments? Is my CPA up to date with all of the ever changing tax laws? Is my attorney aware of the recent legal developments and does he have the skill to apply his knowledge to a variety of complex situations?

Often, states have board certification programs that separate those who are exemplary in their field from those that are not. In Florida, for example, to become board certified by the Bar you must first be found to have high ethics and an outstanding reputation among your peers. Then you must pass a thorough examination in your specific field (such as wills, trusts & estates), and complete a serious amount of continuing education in high level course work every reporting period. Once certified, you must become recertified every five years.

Knowledge isn’t the only criteria one should judge their professional on. A true professional has the wisdom to know when, how and why to apply the knowledge. Wisdom is something that’s gained over the years, certainly. I have also found, however, that those individuals I consider wise haven’t achieved that level without first having an inherent quality that seems to be factory installed. They’ve always had the capacity for wisdom, and only needed life experience to shape it into something valuable for those they interact with.

And you don’t find that in areas outside of your area of education and experience by watching television advertisements or searching on Google for a few hours. Go ahead and do your research on your topic, as well as on the professional that you hire. Assuming you are comfortable with that professional, ask questions, and listen to the answers. If the answers appear reasonable, relax and trust his judgment. If not, find a professional that you can trust.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.