New Website

All are invited to see my new website, Stratton Planning.

Why I Prefer Home Visits

My personal preference is home visits. While I don't mind (and, for me, it is certainly more convenient) meeting clients in the office, I find that home turf is where they feel the most comfortable. Also, while there, they have added access to their books and records; have you ever gone to an attorney, only to discover that you left some important document, like your old will or that deed (after all, trusts cannot be funded without this information).

Sure -- it is more time consuming, but the greater Los Angeles area is filled with lawyers who will not take the time to meet with their clients in this way.

Presently, I am in the process of starting a financial planning practice, as I am now in the process of registering as a California investment advisor. At that point, I fully intend on doing home visits with my financial planning clients. As far as I am concerned, it's the best way to go.

Patenting Estate Tax Strategies?

One wonders about the thinking -- The U.S. Patent Office has been permitting patents on legal strategies for tax avoidance. The New York Times chimes in against the practice:

The broken American patent system has a knack for sanctioning the ridiculous. In the latest example, businesses are receiving patents for devising ways to obey the law — the tax code, to be more specific. What’s next, a patented murder defense?

As Floyd Norris reported recently in The Times, the broad category known as business-method patents (like patenting the idea of pizza delivery rather than the pizza itself) has expanded once again. Now it includes the legal ways that accountants and lawyers help their clients pay less tax.

The criticism seems so obvious: Why should anyone have a patent on a legal interpretation? If in my professional opinion a client should structure his or her estate in a way which would "violate" a patent, does that mean that I do not make the recommendation? Or do I have an obligation to refer the case to the patent-holder?

(Hat tip to Professer Beyer for the link, which is here).

Consider 529 Plans for College Savings

So-called 529 Plans for saving for college and higher education expenses is a great deal, and should be seriously considered even if you are of modest means -- even if you feel that you have difficulty saving. Also, recent federal legislation has made the tax benefits permanent. Here are some of the benefits of a 529 Plan:

• The contributions are after tax dollars, but contributions grow federal tax free, as long as the money is used for "qualified higher education expenses";

• Each state is permitted its own plan; many state allow contributions to be withdrawn with the gains tax free from that states' own plan, again for qualified higher education expenses;

• There is virtually no limit to the amount which can be gifted. While federal law requires states to set contribution limits, and many states have these contribution limits, There is generally no restriction to signing up for another states' plan if you happen to "limit out" in your own (which is not, I would add, generally a problem). Or, perhaps you prefer the plan offered by another state. You may not have state tax advantages in using another states' plan, but it still might be worth it (however, confirm this with your state to make sure that you are not running afoul of any local restrictions);

• You may "rollover" money from one state plan to another. The new College Savings Account must be funded within sixty (60) days, like an IRA. One rollover may take place in any 12-month period, per college savings account. IRC § 529(c)(3)(C)(iii);

• A "trick": If you do not like your state's plan, enroll into another states' plan, and then do a "rollover" into the plan sponsored by your own state as your child reaches college age.

One "problem" with 529 Plans: You are given a basket of securities, but you do not actually have the right to "investment control." The most control that you can exercise is through a general basket of securities, professionally managed. Usually the basket of securities is based upon the age of your child (more aggressive investing for younger children, but less as they advance toward college age). Sometimes you are permitted a percentage equity option -- like 70% equities vs. 30% more conservative investments, etc.

However, I count the lack of investment control over specific investments to be an advantage. All too often, I think, we overestime our investment skills. My suggestion: Just leave it to the professionals to worry about.

The California state plan is offered through Scholarshare which previously used TIAA-CREF as their management company. Happily, at least in my opinion, this coming November (2006)management is being transferred to Fidelity Investments. Here is Scholarshare's press release on the issue:

Beginning November 2006, the ScholarShare College Savings Plan will begin partnering with a new program manager, Fidelity Investments, one of the world’s largest providers of financial services. The new contract with Fidelity - which currently manages more than $8.1 billion in college savings dollars for families across the country - will enable ScholarShare to offer lower fees, better account access and more investment options to California families. TIAA-CREF Tuition Financing, Inc. (TFI) will continue to manage ScholarShare until TFI’s contract expires this November.

I like Fidelity Investment's operation costs (relatively low) and their service. No matter what, however, strongly consider using your states' -- or another state's College Savings Account -- even if you can only invest a little. It will grow.

Trust "Mills" and Lawyer Ethics

I imagine that the situation is fairly typical: A less than scrupulous financial planner, or perhaps someone selling comprehensive "financial and estate" services, (or an estate planning "paralegal") prepares trusts and wills to be signed by a cooperative lawyer-"partner." The lawyer simply signs off on the documents, and the two split the fee. This is fairly common (for example) in the relationship between lawyers and collection agencies. The agency prepares the paperwork, and the lawyer just signs off. The same is true for trust "mills" or "factories," which pump out generic trust documents like so many widgets.

I was once at a Financial Planning Association chapter meeting, when a "financial services" fellow pulled me aside, and suggested a very similar relationship. Now, please do not get me wrong -- as a rule I have found financial planners to be extremely ethical and professional. However, my antennae went up immediately with this individual, and another planner who overheard our conversation pointedly told him at one point, "you've got to be careful. You can't practice law without a license."

That fellow never returned.

In 1990, the Colorado Bar Association addressed this very issue in "Formal Opinion 87," Collaboration with non-lawyers in Preparation and Marketing of Estate Planning Documents

The Colorado Bar determined that this was unethical, on numerous grounds:

-- The arrangement aids the unauthorized practice of law

The purpose of the ethical rule, Rule DR3-101(A), is to protect "the public in its need for and reliance on the integrity and competence of those who undertake to render legal services, recognizing that competent professional judgment is the product of a trained familiarity with law and legal process and a disciplined, analytical approach to legal problems coupled with a firm ethical commitment."

The Colorado Bar cited a previous Colorado Supreme Court decision, which stated that the marketing and preparation of living trust documents constitutes a violation of the Bar Act, constituting the unauthorized practice of law. People v. Schmitt, 126 Colo. 546, 251 P.2d 915 (1952). However, the Bar placed legal aid "kits" prepared for and/or used by the non lawyer in the same category:

Both the "factory" and its non-lawyer salesperson are engaged in the practice of law by preparing and marketing living trust packages, and the attorney's assistance to the factory is an integral part of this process. A lawyer may not assist a non-lawyer corporation which provides legal services to third parties.

The Bar went on:

[A] publishing house's marketing and preparation of living trust "kits" constitutes the unauthorized practice of law as decided in Schmitt, supra. While we hesitate to say that any attorney would violate DR 3-101(A) by representing a client who had obtained such a living trust kit, an attorney who willingly associated himself or herself with such an enterprise, allowing his or her name to be given out in the living trust kits, would certainly violate the rule.

--Fee splitting is prohibited

Another problem with these arrangements is that it violates the near universal rule against fee splitting. Again, the Bar explains the reasoning:

As the American Bar Association has recognized, the purpose of the fee-sharing prohibition is to avoid the possibility of non-lawyer interference with the exercise of the lawyer's independent professional judgment in representing a client, and to ensure that the total fee paid by the client is not unreasonably high.

Yet, this does not mean that a lawyer is wrong in teaming up with other professionals in the estate planning process. Obviously, the ideal "team" is an alliance between a client's accountant, financial planner, and estate planner. The danger, however, is the possibility that the lawyer's independent judgment will be usurped by an unscrupulous and/or uninformed lay person:

The Committee recognizes that a multi-professional "team" approach is often appropriately used in the estate planning process. However, a lawyer involved in such a team must take great care to ensure that such an arrangement does not limit or preclude the lawyer's exercise of independent professional judgment, either with regard to matters delegated to the non-lawyer, or particularly in advising the client as to whether a living trust is appropriate at all.

The bottom line: Let the buyer beware. There are tons of sharks out there. For those of you who attend estate planning seminars, watch the professionals closely during their sales presentation:

If there is a "team," who is doing the talking?

Ask questions. Figure out who on the team prepares the documents?

Also -- who do you interact with as the documents are prepared? If you deal with the insurance agent or "para planner" instead of the attorney, run!

Also, is it high pressure? Are you given a "deal" or a "discount" that will evaporate if you do not sign up right now?

Does the attorney (or other team member) mention anything about funding the trust? If you fail to place the real property, stock, or account in the name of the trust -- as often happens with "mills" -- you end up with a dry, unfunded trust. That's a piece of paper which doesn't do what you paid for.

In the final analysis, remember that the old rule that "you get what you pay for" generally applies in the estate planning field. If you get a "mill" or a "factory" trust -- that's what you get.

If you buy a trust CD for $50, you get ... a $50 trust. That is...

if you're lucky.

Take that, New York

A number of legal blogs have latched onto proposed new rules in New York governing lawyer advertising. The only problem with these rules: They arguably apply to blogs -- even those blogs originating out of state, or even international law blogs.

Allison Shields of the LegalEase blog summarized the draft rule in an early June 15, 2006 post:

Every lawyer needs to be aware of the proposed rules, since they apply not only to lawyers that practice in New York, but also to lawyers that solicit business in New York, which, according to the rules, would include any lawyer whose advertisements on the web can be viewed in New York.

In an article in today's edition of the ABA e-Report, Blogosphere Aboil: N.Y. Proposal Would Designate Lawyer Blogs as Advertising, Stephanie Ward outlines the battle lines:

The storm was set off by a proposal that 'computer-accessed communications' such as blogs be included in New York’s definition of legal advertising, and therefore require state scrutiny. The proposal, by a committee created by the state’s Administrative Board of Courts, also suggests the state code of professional responsibility extend court jurisdiction to out-of-state legal advertising that appears in New York.

"Could I be disciplined by New York state because there are pay-per-click adverts on my weblog or seminars, and these are interpreted as acts which ‘solicit legal services’?" asked Justin Patten, a solicitor in England who posts at his blog, Human Law.

After reviewing the proposed rule, it seems to me that it would not only apply to bloggers, but any firm which posts a website. Many firms, for example, include articles, informational pieces, and other written material which would consitute an advertisment or solicitation for business to the same degree as blogs.

There have been many good pieces written relating to this proposal; however, I must admit that the proposal which will create the greatest heartache for me -- and the most angst -- is this one:

An advertisement or solicitation shall not: . . .

(4) Include the portrayal of a judge, the portrayal of a lawyer by a non-lawyer, the portrayal of a law firm as a fictitious entity, the use of a fictitious name to refer to lawyers not associated together in a law firm, or otherwise imply that lawyers are associated in a law firm if that is not the case;

(5) depict the use of a courtroom or courthouse[.]

Section 1200.6(d)(4)-(5)

Personally, I'm going to have a very tough time with both of these new "advertising" requirements. So -- to get it out of my system before I have to either close down this blog or comply with the onerous state regulations of the aptly named Empire State -- here is a photo of my favorite judge, expressing what I think about this whole thing, captured in a picture from the Boston Herald:




And, in another act of civil/estate planning disobedience against the great State of New York, here are a few pictures worth considering on this humble blog...isn't this courthouse beautiful?




And...how about this Minneapolis courtroom (yes, a **gasp** courtroom which is, incidentally, also quite beautiful) ...




Perhaps the fact the courtroom is in Minnesota will reduce my administrative sanction.

Take that, New York.

(Hat tip to Prof. Beyer for bringing this nonsense to my attention)

Make sure your trust is coordinated with your durable power of attorney authorization

Something which should be considered when you have an attorney prepare a living trust is to ensure that the trust is coordinated with any durable power of attorney which you may have prepared on your behalf.

A durable power of attorney allows you to designate an agent to act on your behalf. For example, you might want to make sure that you have an agent authorized to manage your financial affairs if you are unable to do so. It is "durable" because your agent may act even if you are under a disability -- even disabilities such as (heaven forbid) Alzheimer's and dementia, or even a coma. A durable power of attorney is not to be confused with a power of attorney authorizing health care decisions, which is an entirely different subject. A durable power relates to financial and property-related matters.

Of course, living trusts also relate to financial and property-related issues. Thus, durable powers of attorney and trusts often overlap in many ways.

However defects or changed circumstances sometimes arise after the trust's settlor (i.e., the person(s) creating the trust) is incapable of amending the trust agreement. In anticipation of such cases, a settlor might want to consider giving his or her agent (also called an "attorney in fact") the right to amend or even revoke a living trust.

In California it is necessary for the trust agreement to specifically state that the attorney-in-fact has the authority to amend or revoke the trust. California Probate Code section 15401(c) requires that the trust document grant this authority.

While there are many considerations involved in deciding whether to ultimately permit your agent to retain this type of authority, make sure that your trust document reflects your wishes. Personally, I prefer the trust document to permit this authority. But if my client wishes to limit the scope of his or her agent (or even to deny the agent the power to amend and/or revoke the trust), I generally address the issue through the durable power of attorney authorization. In my view, this is the most flexible approach which also prevents unnecessary trust amendment in the event the client changes his or her mind, or if circumstances change.