Upstate Estate Law, P.C. Blog

There were no real Congressional debates in September on extending the Bush Tax Cuts, or what to do about the repeal and pending reinstatement of the estate and generation skipping transfer taxes.  Congressional members have left D.C. until after the midterm elections in November.  Democrats did not want to suffer a defeat on their proposals prior to the midterms, and the Republicans wanted to keep the issue alive as a talking point in the run up to Election Day. Unsurprisingly, playing politics has won out to responsibility in our tax laws.  Can this be one of the reasons it seems a majority of the American people is fed up with politics as usual?

One way or the other, we will soon have certainty on the future of the estate and generation skipping taxes.  Stay tuned……

This post is off topic, but I think it merits a discussion in case there are any attorneys out there who still don’t know about this.  The issue is scam emails that make the promise of you earning a legal fee for a small amount of work, but are really targeting your IOLTA account.

These scams target attorneys and they work like this.  The attorney will receive an email from a potential client who needs assistance in some sort of a debt collection or enforcement matter.  The context will be a debt collection case, or a family court order enforcement case, an estate matter, or any other type of case you can think of where the attorney will demand a third party to make a payment to his client pursuant to a contract. 

If you get one of these emails, it can be difficult to tell straight off that you are dealing with a scammer.  If you respond to the email, you will probably immediately be sent documents that support the claim to be made.  In the family law context you will receive a family court order stating that money is to be paid to your client; in the debt collection context you will receive a contract and possibly a demand letter to be sent.

The scam continues as follows. The attorney will make a demand on the third party, and low and behold will receive in the mail a check payable to the attorney in the amount of the claim.  The attorney will deposit that check into the IOLTA account as required. Then the client will request the funds to be wired to his/her account, while the attorney retains a portion of the proceeds as the legal fee.  It is not until days later that the attorney’s bank discovers that the check was fraudulent. 

The attorney is then in lots of trouble as the missing funds need to be replaced, and if any valid instrument has been denied payment by the bank for non-sufficient funds, the attorney is going to be reported to the bar association. These scams are remarkably sophisticated, and small firms and big firms alike have fallen prey to them.  I have even seen some scams that try to make you feel like you are working with another attorney on the matter, ie, that attorney is in the state where the client is but obviously needs to hire you as local counsel, but it is all part of the scam.

How does an attorney protect against this? First, never wire funds out of your escrow account in this manner unless you are certain the funds are collected, or you have no doubt that the available funds will be collected.  There is a difference between funds being available and funds being collected. Second is to avoid the situation of having to deposit such funds into your IOLTA account.  If you accept this type of case, do so only if the client pays you upfront.  This way, you will not have to deposit funds into your IOLTA account in order to be able to receive your fee.  I was able to sniff out a scammer who was trying to tell me they were owed hundreds of thousands of dollars pursuant to a contract, but would not pay me a small retainer fee to get started.  Third, if you do receive a certified bank check and are in doubt as to the authenticity of the check, enlist your own bank to help make a determination as to the authenticity of the check. A phone call to the payor bank can confirm whether the check is a forgery or not. (But do not just call the telephone number printed on the check, if the check is forged, rest assured that number is fake as well.)      

It is reported that Senator Harry Reid had proposed debates to be held in September 2010 on the future of the federal estate tax.  It seems to me that the Democrats hold the leverage at this point, with the Republicans more inclined to give in on their side in order to avoid the automatic reinstatement of the federal estate tax at pre-EGTRRA levels, ie, a one million dollar exemption per estate with a maximum tax rate of 55%.  However, with the midterm election looming and uncertainty as to the future constituency of the Congress, I doubt that any actual legislation will be announced in September.    

President Obama’s 2011 proposed budget assumes that the estate tax law will include a three and a half million dollar exemption per estate with a maximum rate of 45%.  It will be interesting to see where the law stands on January 1, 2011.  I will post at midnight on January 1, 2011 to let you know.  Stay tuned….. 

Absolutely.  Your financial planner can play a role in your estate planning.  If your planner has recommended particular products to you, such as life insurance, annuities, or IRAs, consideration should be given to the effect that such assets can have on your estate plan, including your estate tax liability. Reviewing your estate before purchasing these products could best inform you of how to best structure these products to maximize estate tax savings or insure that your testamentary intentions are carried out fully.

However, there does seem to be some financial planners who do not entirely understand the attorney’s role in the estate planning process.  I have been contacted in the past by financial planners who tell me that they have a client who requires estate planning, that the planner has made recommendations to the client regarding estate planning, and that the planner simply wants to hire me to draft the documents that conform to his/her recommendations.  My policy has been to always refuse such offers. In my opinion, this sort of relationship between attorney and financial planner does a disservice to the client in that the client believes that they have had an attorney review their estate plan, and yet, the attorney has not given any sort of independent advice to the client.  This independent advice is crucial to the attorney-client relationship. 

Furthermore, such activity by a financial planner could be viewed as the unauthorized practice of law, with the attorney being accused of facilitating the unauthorized practice of law.  I have even had some financial planners say that all I will do is draft the documents, not even meet the clients.  This is fraught with danger to attorneys and their bar licenses.  There was a recent report from the Indiana State Bar of a suspension of 120 days being given to an attorney who drafted a Will intended to be signed by a person with whom the attorney never met.

There is a middle ground that must be found here. The financial planner wants to be a trusted long term adviser to his client, and may feel uncomfortable in turning the client over to an estate planning attorney.  However, the professional ethics of the attorney require that the attorney act as more than a mere scrivener to the financial planner.   

In all instances when I am referred a client by a financial planner, I discuss with the financial planner what are believed to be the estate planning issues to be dealt with. But I always thereafter meet with the client separately from the financial planner, so that the client can truly believe that the attorney they have hired is giving them independent and unbiased advice.

Here is an anecdote which I believe demonstrates the danger to any attorney who agrees to be employed as a financial planner’s scrivener.  Suppose a financial planner advises his client to make irrevocable transfers of assets to an irrevocable trust.  Suppose that an attorney then follows the financial planner’s directions, drafts the irrevocable trust, and then drafts the transfer documents. The financial planner then supervises the execution of the documents.  What could be the problem?  You did what the client wanted after all.  BUT, suppose five years down the line that client realizes that because of changed circumstances they need those assets back from the irrevocable trust?  That client will probably go to an attorney (not you because the client does not know who you are) and discuss with that new attorney ways to overturn the trust.  That new attorney will likely advise the client to petition to overturn the trust based on lack of adequate and independent legal representation. Do you as an attorney really want to testify at a deposition on the record that you drafted estate planning documents for people that you never met, that the non-attorney financial planner was calling all the shots, and that you exercised no independent judgment as to the propriety of the irrevocable transfers? That is not a position I ever want to be in.  All of my estate planning clients get the benefit of my independent and unbiased advice.  Any circumstances that arise that seek to alter this independence deserve increased scrutiny.

So what should you do if your financial planner makes estate planning recommendations to you? First, ask the financial planner if he has attorneys working in his company who can give independent estate planning advice.  If the answer is no, ask for recommendations for an estate planning attorney in the community, and then contact that attorney for an appointment.

Any financial planner that tells you that they can manage your investments and also draft the documents required to effectuate your estate plan without you having to ever visit an attorney is doing you a disservice.  The estate plan will be subject to an increased likelihood of being challenged and set aside by a court, and you will be denied the value of independent advice.             

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

Over the past several months I have been working on an estate that owns real property.  The property is subject to a home equity conversion “reverse”  mortgage, and unfortunately, the unpaid balance, which became due and payable upon the death of the decedent, is now greater than what the property is worth on the open market.  Thus, a short sale is the only way to proceed, other than allowing the bank (which in this case will remain nameless) to foreclose on the property.

The difficulty I have encountered in trying to accomplish this short sale serves as notice of how regulation of the mortgage market can cause poor economic results.  There is a HUD regulation that requires the short sale price to be at least 95% of the appraised value of the property (the appraisal must be obtained by the mortgage holder, the buyer’s appraisal will not be acceptable.)  There also can be no seller’s concession as part of the purchase price, even if the contract price less the seller’s concession is still in excess of 95% of the appraised value.

I do not understand where the 95% figure comes from, it is quite arbitrary and has no relation to reality.  If the short sale cannot be accomplished, the home will go into foreclosure, which results in increased legal fees, court fees, and service of process fees. The foreclosure price at auction can easily be 75% to 50% of the appraised value.  There is also the issue of the damage that can occur to this home if it remains vacant for very much longer.  So if a purchaser makes an offer of 94% of the appraised value, my contact at the bank says that “per HUD regulations the sales price must be 95% of the appraised value.” Because of this arbitrary 95% limit, more money will be lost in the foreclosure. 

Because the reverse mortgage is federally insured, the bank knows that it will be made whole whether the property sells via short sale or foreclosure auction.  It is the government, and we the people, who are on the hook.  The federal insurance is paid for through mortgage insurance premiums that are added to the cost of the mortgage, so hopefully the burden on the federal fisc is not so great. But the mortgage insurance premium increases the cost of the mortgage in the first place, and reverse mortgages are notoriously expensive.  So, why does HUD have a seemingly arbitrary regulation in place that kills the possibility of a short sale unless the sales price is 95% of the appraised value?  Particularly when we know that the only likely alternative, a foreclosure auction, will result in much greater economic loss, and increased costs for the loan in the first place?

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