Everyday Estate Planning

Michael Jackson left behind a tangled financial web, sure to take many years and many lawsuits to sort out. But he also left behind three young children (aged 12, 11 and 7) and, apparently, no valid will (at least, one has not yet been submitted to the Los Angeles County Probate Court as of this post). Today, June 30, his mother, Katherine Jackson, has been appointed as their temporary guardian. Hearings will be held on July 6 and August 3rd to determine if she'll become their permanent guardian.

Since this (to put it mildly) is getting a lot of media attention, here's the legal background:

A guardian is in charge of a minor's care and custody, which means their food, clothing, shelter, education and medical needs. A guardian has to be appointed by a court order -- it's a kind of custody order really, granting someone other than a parent legal authority over a minor's care. If there's an emergency, a court can grant a temporary guardianship quickly.

But between now and the hearings, Katherine Jackson will have to do her best to find and notify Deborah Rowe, the mother of Jackson's two eldest children (his youngest was born to a surrogate mother who presumably waived any parental rights as part of the surrogacy).  At the hearing, a judge will consider what would be in the best interest of Jackson's children. The notification of the children's mother is required in order to make sure that she has a chance to object to the guardianship at that hearing -- ordinarily, a parent has precedence over anyone else unless there are unusual circumstances, which abound here.

If Michael Jackson's will is found, and proved to be his valid last wishes, and the nominated guardian is not Katherine Jackson, the named person may contest the guardianship proceeding, too. But ultimately, it will be up to the judge to sort out the competing claims and decide what's best for the children.

It is reported that the petition also requested that Katherine Jackson be named the temporary guardian of the children's estate,  which means the person responsible for safeguarding Jackson's assets for the benefit of the children -- but this was rejected. AP also reports that Katherine Jackson has filed to be named the administrator of Jackson's estate -- the person who must inventory and appraise the estate's assets and manage them during what's likely to be a long and complicated probate proceeding.

Part of the 2006 tax reconciliation bill is about to matter to many of us come January 1, 2010. It's sort of a good-news/bad-news deal -- but more good than bad for many. As of January 1, 2010, there will be no income limits for those who want to convert a traditional IRA to a Roth IRA. That's good because until that date, households with an adjusted gross income of more than $100,000 were barred from converting their IRAs to Roth IRAs and married spouses filing alone were barred regardless of their income.

Roth IRAs, for those of you in need of a quick review, are retirement savings accounts where you pay the income taxes due when you contribute to the account -- then, it grows virtually tax-free and your withdrawals are also tax-free (but you don't get the income tax deduction when you contribute the money).

So, for those of you whose traditional IRAs are now worth far less than they used to be worth (that's the bad news part), converting to a Roth IRA in 2010 could be a great idea: Since the account is now worth so much less, the taxes on the conversion will also be much less than they might have been, and if tax rates go up in the future, as many predict they will, you'll have already paid the taxes due on the account.

For a good article on the ins and outs of the new rules, see this article from the Wall Street Journal online.

From the Wall Street Journal comes a tale of how an elderly, well-educated man fell victim to fraudsters who lured him into writing checks for a variety of scams. In less than one year, he'd sent out $23,000 worth of checks -- despite repeated efforts on the part of his family to get local law enforcement and others involved. Finally, the victim granted his son a power of attorney to manage his finances -- but even then, he kept writing checks for scams.

Scammers were extremely effective in gaining his trust, preying on his isolation to gain access to his confidential financial information. Worse, once he had gotten involved in a few of them, his name ended up on a "Sucker List" that was sold to other scammers, leading to an avalanche of other fraudulent offers.

One scam, in particular, has gained in popularity: a fake check, purporting to be an advance payment for winnings to come. The victim cashes the check, sends the cash to the scammer, and then is on the hook when the check bounces a few days later.

If your elderly relative is getting such calls and offers, here are some helpful tips from the article:

• Put their cell phone and landline on the FTC's Do Not Call Registry at https://www.donotcall.gov/.
• Call the AARP's Fraud Fighter Call Center at 1-800-646-2283.
• Put scam mailings into an envelope and forward them to the Postal Inspector-Suspected Mail Fraud -- no postage is required.

Estate planning and financial planning often go hand in hand. It makes a lot of sense to pay attention to what you've got when you're planning how to leave it responsibly to those you love. But it's a jungle out there when it comes to figuring out how to get the help you need.

Self-help is a great option, of course. But for those who want a real-live person to sit down, review your finances, and either make suggestions on what to do better or take over  management of your assets, buyer beware. Financial planners are poorly regulated, poorly credentialed, and your remedies against a crooked one are few.

SmartMoney magazine has a great article on how to be an informed consumer. Here are some of the highlights:

• Find out how long the planner's been practicing. Better yet, ask them if they've passed the CFP (Certified Financial Planner) exam -- that's an exam that only 56,000 planners have passed out of the 650,000 folks out there who say they are financial planners.
• Notice if they are trying to give you advice or trying to sell you products. Stay away from those who are primarily selling products -- the odds are that they're steering you toward products that get them maximum compensation rather than those that will meet your needs best.
• Ask them if they are preparing your financial plan or hire outside consultants to do so.
• Find out how they are compensated. Are they fee-only or commission-based? It's not that one is necessarily better than another, but it's important to understand how they are being paid and to make sure that they will act in your, not their, best interests.
• Check with the SEC to see if they have received any complaints about the planner.
  

The AP reports that under Senator Kennedy's health care proposal, "Americans would be able to buy long-term care insurance from the government for $65 a month." People would enroll in the program during their working years. After five years of paying the premiums, they could receive benefits (worth not less than $50 per day) that would pay for a wide range of services designed to allow them to stay in their own homes and avoid moving into nursing homes.

The proposal is just one of many in the 651-page bill, which also includes changes to the way that health insurance is offered and taxed.

NPR reports a story of interest to all of those who stand to inherit a collection of note from a parent. And it's a good reminder that you need to think about what you've inherited.

Collectibles dealer John Stasso amassed a large private collection worth millions, consisting of manuscripts, ancient books, artifacts, and antiquities that began with a trip to Italy in 1958. When his son, Joseph Sisto, realized that many of the artifacts had been illegally smuggled out of Italy, he confronted his father.  When Joseph found out that his father had died, he immediately called the police. Two hours later, the FBI arrived, along with specialists who will inspect and return the artifacts to Italy, many of which hadn't been seen for a very long time.

"It's a huge relief," said Joseph, "because as much as I love my... family, this will also help them... They won't have to live with the oppression of thinking they have stolen or smuggled goods... It's sort of like trying to own a Mona Lisa in your house, you know."

These days, cash is king -- and some of us just don't have enough of it. If you need to borrow money from a family member to make it through until times are better, you're not alone. But, please, do everyone a favor and be formal about it. That means put the loan in writing, generating a payment schedule, and agreeing on an interest rate that's at least what the government has published (don't worry, it's really low right now). Here's a good overview.

Why is this an estate planning issue? Because if you die unexpectedly, a loan that's been properly handled is much easier for your family to understand and take account of. It's hard enough to sort out family finances when there's been a death, but when important financial transactions have been handled with a nod and a wink, extremely messy situations can result.

Here are the basics:

1. For any loan over $10,000, make sure you're charging at least the applicable federal rate for the loan. You can find that rate on the IRS's website.
   
2. Write down the terms of the loan in a promissory note. Here's a nifty one you can download instantly.
3. Print out and follow a loan amortization schedule, so you know what the monthly payments will be. This free program will help you figure it out.

The current Congressional Budget Resolution includes a provision that will freeze the current estate tax exemption at current levels, allowing individuals to pass up to $3.5 million of their estate free of the estate tax. The resolution also freezes the maximum tax rate at 45%. Even if it passes, this provision expires after one year, leaving the future of the estate tax uncertain. Here's a link to a great article from Money magazine on rethinking your estate planning options, given the current economy and the uncertainty of future tax rates and exemptions.

In what's starting to seem like a series on the ways in which powers of attorney can cause heartache -- or worse, elder abuse -- comes a story out of St. Louis. The heirs of one of the last surviving Munchkins from the film The Wizard of Oz, Mickey Carroll (real name, Michael Finocchiaro), are suing his caretaker, Linda Dodge, claiming that she and others took advantage of the actor in his final years.

The heirs claim that Mr. Carroll, who died Thursday, May 7, signed powers of attorney transferring power over his property and health care decisions to Dodge when he was unable to understand what he was signing. They further claim that Dodge then kept him isolated, spent his assets, and kept the money that Carroll made from appearing at events.

Dodge counters that the dispute is just a "family squabble" and that she took good care of Carroll.

People often ask me what to do with their estate plans when they move to another state. Here's the answer: if you think you're going to be in that new state for a while, it makes sense to update your estate plan to reflect that state's laws.

It's not that your estate plan will be invalid in another state. With the exception of gay marriage (in some states), contracts signed in one state are valid in another. But it can create inconvenience for your heirs if they have to administer an estate under, say, California law, if a parent died while residing in Georgia -- especially if the kids live in Georgia too.

Also, powers of attorney, which are important legal documents granting another person the right to act on your behalf with respect to property and health care, are created by state law, and your rights, especially with respect to health care decisions, vary from state to state. For that reason, and additionally because banks and doctors like working with forms that they know, it's a good idea to at least create new powers of attorney if you move to a new state.