What Is Information?

The world changes at a rapid pace.  As recently as twenty-five years ago, fax machines weren’t ubiquitous, personal computers were clunky and not very useful, there were no cell phones, and there was no internet of which to speak.

Information bombards each and every one of us daily.  The smart phone in your pocket contains more communication, digital computing and research capabilities than the largest mainframes of a generation ago. We have access to the internet in our homes, offices and local eateries. Information is more readily and instantaneously available to us now than at any other time in history. When my mother was diagnosed with acute myeloid leukemia (AML), for example, I searched the internet for information about its prognosis and treatment.

People tend to search the internet when making major decisions, whether they are medical, financial, or legal. What you have to realize, however, is what kind of information you’ve discovered. We’ve all heard, “I learned enough on the internet to make me dangerous.” That’s a very true saying. Allow me to take the next step to differentiate between the four different levels of information.

Data is the first level. Data is everywhere – but it’s fleeting – relevant only in the moment. Stores record the amount of sales revenue daily. The rise and fall of stock prices, the number of individuals affected by a flu virus and how many new jobs were created in the past quarter. Newspapers cite data from baseball player’s hitting averages to the amount of rainfall recorded in the past 24 hours.  We may learn the number of months the average patient diagnosed with AML lives.

Without context, however, data means absolutely nothing.

The second level is information. Information is useful but has a shelf life. The news contains much information, but it may only be relevant today. It’s stale tomorrow. The internet is chock full of information. Some may be from a knowledgeable source, while some other is nothing more than uninformed opinion.

Knowledge is the third level of information. Knowledge has a much longer shelf life than information has, and is usually supported with years of education and experience. Knowledge is not something gained by reading articles in newspapers, magazines and internet blogs. You may digest information from those sources, but you won’t earn any knowledge without being able to put that information into both a historical context and a view of relevant but interrelated factors.

Shortly after my mother’s AML diagnosis, for example, and after having gained information as to which medical centers treated the disease with success, we flew to Houston’s MD Anderson Cancer Center where trained doctors with AML specialties used their years of accumulated knowledge to begin treatment. Through their efforts, my mother achieved remission for many years following a bone marrow transplant, which ended up having to be repeated eight years later. While I had found all sorts of information on the internet about AML, I did not have the knowledge necessary to save my mother’s life. Only the expert physicians and their medical teams had that.

Knowledge changes over the years, however. So it too has a shelf life. The cancer treatments of ten years ago are vastly different than those of today. The knowledge has changed.

In contrast, the highest form of information doesn’t have a shelf life – and that highest form is wisdom.  Most of the world’s major religions are predicated on the wisdom of how to live a full and good life as a human being with all of our faults and foibles.  Wisdom can also be found in many of the best medical, legal and financial professionals.

There are some professionals who have knowledge gained from years of experience but lack the wisdom to choose whether one course of action is better than another – which is the wisdom of how to best apply knowledge. None of us know what the future brings, even the most knowledgeable professionals. Life has a way of surprising us.

I believe that true wisdom comes from a unique ability to filter knowledge and life experience into a fabric of understanding, with an ability to communicate that understanding in a way that endures. It’s not always sexy or flashy, but when you find someone who has true wisdom you never want to lose them.

I therefore try not to confuse data and information with true knowledge and wisdom. This helps me find clarity in my everyday decisions.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

My Dad’s in the ICU, and He Needs an Estate Plan

Several times a year, I receive a telephone call that goes something like this: “Hello, my friend gave me your name and I really need your help,” the caller says.

“What can I do for you?” I begin.

“My dad needs a Will…and a Durable Power of Attorney.  And while I’m thinking of it, he should also have a Health Care Surrogate.”

“So, it sounds like your father needs a complete estate plan. Does he have any of those documents now?”

Sometimes the answer is “No.” Other times the answer is “Well, his documents were done 20 years ago, so I’m not sure they’re relevant anymore.”

So, my next question is, “When would he like to come in to go over her estate?”

It’s usually followed by answer that I never want to hear.

“Well, that’s the problem…Dad’s in the Intensive Care Unit at Health Park. He suffered a massive heart attack, and we don’t know how much longer he’ll be with us.”

“Oh my! I’m sorry to hear that. Is he competent to discuss his estate plan with an attorney? Is he on any medications that might alter his state of mind?”

There’s usually a long pause on the line before caller says, “Well, he does have lucid moments when he knows that we’re in the room with him.”

I feel sorry for people who get trapped in this type of a situation, but honestly it falls under the category of too little, too late. Procrastination can be extremely detrimental, especially regarding something as important as creating the legal documents necessary to take care of yourself in the event of a health problem or distributing your assets to your loved ones at your death.

While not one of us likes to consider the possibilities of our decline in health or even our own demise, these are realities of life that will happen to all of us. It’s not a matter of if these sorts of things will happen, but instead it is a matter of when they will happen.

The hospital ICU ward is not the ideal place to make these types of decisions. A major problem when working with a client who has recently been traumatized with a major health event is in determining whether they are legally competent to sign anything.

To create a will, for example, one must be able to understand the extent and scope of one’s assets and how those assets are to be distributed under the terms of the will. It sounds like a low standard, but someone who is on morphine or other pain medications probably lacks capacity, at least at that time. And for those who suffer strokes or other brain issues, they may never recover to the point of having capacity.

Undue influence is another concern. When a patient is surrounded by particular loved ones when creating a will, there’s the chance that others who were not present and who may not benefit (or benefit as much as someone else does) under the will can claim that the patient was unduly influenced, and therefore the will should be overturned.  The law may actually favor the challenger as it presumes undue influence in these types of situations.

Another problem is that not all estate plans are equal. The client may need a will or they may need a trust. That depends on a variety of factors including the types and amounts of assets that they own. When you create a will or a trust there are many sub-issues that should be carefully thought through, including who is going to serve as your personal representative, trustee, agent under a durable power of attorney and health care surrogate. Distribution issues must be considered, beneficiary forms conformed to the estate plan, as well as life insurance, estate tax and income tax planning issues to name a few.

Sometimes one can successfully navigate these issues while in the hospital, or even under hospice care. It’s likely going to cost a lot more in professional fees since everything is on a rush basis and the attorney and their team are going to have to travel to the hospital to review documents and obtain signatures.

In short – dealing with this scenario is a nightmare for the patient and for his family.

Do yourself a favor – make sure that you don’t find yourself in this situation. If you or a loved one has procrastinated completing your estate plan, hopefully this column will jump start you into getting it started.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Closely Held Stocks, Partnerships & LLCs

A client recently passed away who owned several non-publicly traded, smaller company shares of stock, limited partnership interests and membership interests in LLCs. These are often referred to as closely-held entities. Since the shares are not publicly traded on a stock exchange, they are largely illiquid; that means one can’t easily convert the investments into cash. Generally speaking, these types of assets are difficult to deal with when a client becomes incapacitated or dies. The more information you provide to your estate planning attorney while you are alive and well, the better.

In this particular case, my client never informed anyone at my firm that he owned these shares. We knew nothing about these businesses. We could not locate evidence of the purchase price, exactly how many shares he owned, or even who the primary contact would be to advise the company of our client’s death. It took several hours of investigative work, as well as combing through his paper files, to find out much of anything to do with the shares. If the client maintained records electronically, we could not access them as we didn’t know which account, username or password we might access.

Further, many closely-held business interests are governed by a shareholder, partnership or operating agreement that restricts the transfer of the shares to another and might establish a specific purchase sequence in the event of the disability or death of the shareholder, partner or member. If there were any such agreements that governed our client’s ownership of the assets, he never provided them to us.

To properly report taxes, it’s necessary to know the fair market value of the shares as of the client’s date of death. This is because the federal (and state level) estate taxes are based upon the date of death fair market value of all assets, including closely held shares. Even if the deceased’s estate is not large enough to trigger a federal estate tax, for capital gains reporting purposes it’s necessary to know the date of death fair market value of shares so that when they are subsequently sold the capital gains taxes are minimized.

Each of our estates receive a step-up in tax cost basis equal to the date of death fair market value. Since small businesses and partnerships have no ready market, it’s often difficult, if not impossible, to determine the shares’ fair market value on any particular shareholder’s date of death. Conducting a valuation of the company is expensive. Therefore, most companies won’t engage a valuation specialist every time a shareholder dies, unless it’s a family business and most of the other shareholders are family members who have a vested interest in the date of death fair market value.

Sometimes the company will provide recent sales transactions as the best estimate of a closely held interest. Those transactions, however, may be several years old and of little use to the estate, particularly where the business’ performance has materially increased or decreased from the year of the most recent sale.

If you own closely held business interests, it always makes sense to provide your estate planning attorney a copy of:

  • The share certificate or other evidence of ownership;
  • Purchase price and date, including a copy of the purchase agreement (if there was one);
  • Sales prospectus and closing statements relative to the purchase of the interest;
  • Articles of Incorporation, Bylaws and other relevant corporate documents;
  • Shareholder, partnership or membership agreements including amendments;
  • Name and contact information for the company’s registered agent;
  • Correspondence regarding the ownership interest or significant transactions involving the business;
  • Any valuation reports, no matter how current; and/or
  • Any other written information that could be of value to your estate.

This, at least, provides a base of knowledge from which your estate can piece together the information that will be necessary in the event of your disability or passing. After all, we want you plan to be up-to-date when you need it most!

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Estate Planning for Those in Their 30s, 40s and 50s

Many clients don’t consider visiting with an estate planning attorney until they reach their 60s, 70s or even 80s. That’s a shame because younger clients could benefit from such a relationship in any number of ways.

During the Savings & Loan crisis back in the 1980s, for example, an entrepreneur by the name of Sam Idelson teamed up with David Band, a Sarasota estate planning attorney to create some of the most dynamic wealth on the west coast of Florida. Together they purchased distressed commercial real estate, renovated it, and then sold the properties once the economy recovered.

Their complimentary skills, Sam with his business and real estate acumen, David with his legal expertise and connections to lenders, enabled them to together achieve what neither could alone.

Not every estate planning attorney/client relationship will be as lucrative. In fact, Bar Rules prevent attorneys from entering into business transactions with their clients without full disclosures of conflict of interest and the requisite steps to both waive and release the conflict.

Even without entering into business deals together, many in their 30s, 40s and 50s don’t realize the beneficial impact that developing a relationship with an estate planning attorney could create now and into the future. Here are just a few ways that an estate planning attorney might help a younger client:

Financial & Insurance Planning

While attorneys are not expert financial planners, they often do know what asset categories create wealth and which ones benefit financial firm selling the products more so than the client. As a lawyer, I have no “skin in the game” in the form of commissions, for example, when reviewing a client’s intended purchase of insurance or financial products. Consequently, I can often provide a clear-eyed, unbiased view of whether an intended course of action makes sense.

A physician client once came to me after purchasing several insurance and annuity products. She had been sold these products based upon their asset protective value under Florida law. I had an independent advisor look into the commissions and management fees associated with these investments and described to her the tax treatment upon her retirement. She said she’d wished that she visited with me before she bought them.

Real Estate Investments

We also tend to understand the benefits and risks of owning commercial or rental property inside of a partnership, LLC, or corporate entity. I have outlined the legal and tax consequences of entity selection and the effects of non-cash expenses like depreciation to many clients before they bought a property, so that they could make clear decisions.  An ongoing relationship with a trusted advisor might save you from making major mistakes that could cost hundreds of thousands of dollars over your working career;

Connections

A good estate planning attorney makes all sorts of connections in the business world, from bankers and lenders to property management companies to developers and other business people. In my thirty years of practice, for example, I’ve developed relationships that I’ve kept in my electronic rolodex, connecting clients with others who can help them achieve goals;

Children, Adolescents & Young Adults 

Having raised three daughters, the youngest of which is now in college, I’ve navigated the emotional and financial issues associated with raising a young family. As an estate planning attorney, I’ve also created silos of trusts and other vehicles to provide for my family in the event of my disability or death. Who should serve as your children’s guardian and whether that same person should control the purse strings in the event of your death merits serious discussion. How to properly save for higher education (including investigating the plethora of scholarships and financial aid offers available), whether to title the car in a young driver’s name, and how to best purchase liability insurance are all things that I’ve had to deal with not only for myself but have also assisted my clients during my professional career. Those clients who are in the middle of these life cycle decisions can benefit from an ongoing relationship with a trusted advisor.

Aging Parents

They don’t call those in their 30s, 40s and 50s the “sandwich generation” for nothing! When my mother developed leukemia fifteen years ago, and needed a life-saving bone marrow transplant, I learned how to investigate doctors, clinics and research hospitals that were needed to save her life. Moreover, my parents had real-life financial and medical insurance issues, that without my background would have been next to impossible to deal with. Most of us in this age group deal with failing loved ones. My experience with Hope Hospice was also invaluable when my mother needed those services as well. I’ve gladly assisted hundreds with many of these same issues for their loved ones.

Even younger clients who don’t feel that they need a complicated estate plan can benefit from developing a relationship with a competent estate planning attorney. It worked for Sam and David a generation ago, and will work for you now. If interested, I offer a workshop on these topics. If your group would want me to speak on these topics, please contact me at 239.334.1141.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.