Kids Protection Workshop
On May 2, 2009, learn how to protect your family, preserve your weath and leave a legacy for your loved ones. Schomer Law Group will be hosting a workshop at Color Me Mine in Mahattan Beach, California. Participants will be eligible to win a $200 gift certificate from Collen Berg Jewelry. To register, call Schomer Law at (310) 337-7696.
The Ultimate No-Contest Clause--Russian Style.
A no-contest, or in terrorem, clause, is frequently used in wills, trusts and other estate planning documents to minimize the likelihood of a disgruntled beneficiary challenging the estate plan. The phrase ‘in terrorem’ is Latin meaning ‘to frighten’ or ‘terror’. The basic concept is that if a beneficiary launches an attack on the estate plan and is not able to convince a court to change it, then that beneficiary loses any gift under the estate plan. A typical no-contest clause might reduce an expected intestacy gift (perhaps 50% of the estate), down to something smaller, perhaps 10% of the estate. Under this hypothetical, if the beneficiary accepts the estate plan, he receives the 10% gift, but if he challenges the plan (hoping to receive 50%) and loses, he receives nothing. No contests clauses are quite common in California and have been the subject of evolving legislation and extensive litigation.
Now from Russia comes penalty that exceeds anything dreamed up by the most creative estate planner. On February 12, 2008, Badri Patarkatsishvili, described as a post-Soviet Oligarch, died of a massive heart attack leaving an estate allegedly valued at billions of dollars. According to his family, Mr. Patarkatsishvili did not leave a will. In a recent Los Angeles Times article, a Russian-born New York lawyer named Emanuel Zeltser appeared at Mr. Patarkatsishvili’s wake and advised the grieving widow that her late husband had signed a secret will naming him and a half-cousin as executor. During the following month, attorney Zeltser and the half-cousin sought access to Mr. Patarkatsishvili’s global investments. Mr. Patarkatsishvili’s family sued in U.S. federal court, accusing the two Americans of trying to loot the huge estate with forged documents. The family called Zeltser's documents "invalid …" noting that several "appear to be forgeries".
According to the Los Angeles Times, attorney Zeltser had a very colorful background. Born in Siberia, Zeltser immigrated to Texas in 1974 and in 1990, was admitted to practice law in New York. During his time in the United States, Zeltser has been sued at least three times for alleged fraud including one New Jersey case where a jury concluded that Zeltser had wrongfully seized a business and was ordered to pay more than $2 million in damages. In 1993, attorney Zeltser was retained by a Russian bank, but was later accused of using his position to steal as much as $6 million of investment accounts. An attorney for the bank declared that Zeltser was a "career con man" who "forges documents on a routine basis."
In early March, Zeltser met several times with Boris Berezovsky, another Russian oligarch and former business partner of Mr. Patarkatsishvili. While Mr. Berezovsky backed Mr. Patarkatsishvili’s widow, Zeltser allegedly proposed they work together instead and drafted an agreement to secretly divide most of the assets between them, leaving only 15% for the family. On March 11, 2008, the offer was rejected when Messrs. Zeltser and Berezovsky shared a meal at a London restaurant. After the meal, Zeltser allegedly boarded Berezovsky's private jet believing that he was heading to Miami, but instead landed in Minsk, the capital of Belarus. Zeltser was arrested at the airport and charged with economic espionage and using false official documents to defraud Mr. Patarkatsishvili’s estate. After a closed-door trial, Zeltser was sentenced to three years in Penal Colony #15 in eastern Belarus, where he remains to this day.
I can think of at least a few clients over the years that would love to include such a clause in their estate planning documents. While not possible in the United States, attorney Zeltser’s case certainly presents a cautionary tale for those fighting over estate planning documents in other jurisdictions.
Does it make sense to file probate to save a failing asset?
The shrinking values in the real estate market are truly frightening these days. I have received reports that values are falling less to approximately 25% of peak values (i.e. a 75% decline in value). I have even seen reports of homes being listed for as little as $100.00 in certain parts of the country. In recent weeks, I have encountered several situations where precipitous valuation declines impact the decision of whether to commence a probate proceeding.
The typical situation involves a decedent-borrow who was struggling to remain current on his mortgage and/or found himself with an ‘underwater’ property (i.e. a property where the loan balances exceed the fair market value). With the death of the borrower, it is not usual that the loan is not being paid and frequently there are few resources available to make such payments. Sometimes the loan is already in foreclosure and literally weeks away from auction.
Recently, I encountered one situation where, at best, the estimated fair market value of a condominium was approximately $200,000 with equity remaining of approximately $10,000. With the mortgage several months in arrears and the foreclosure process already started, the heir wanted to know if the property could be ‘saved’ or somehow the foreclosure process could be stopped. While it is within the probate court’s power to temporarily stop an asset sale, most courts are reluctant to issue an injunction if it will be a useless act. With little cash in the estate it was not clear that filing a probate proceeding to save the real property from foreclosure would be a productive exercise.
Using this situation as an example, if the property would be sold, typical property sale commission and closing costs are approximately five percent of the gross sales price or, in this circumstance approximately $10,000. Moreover, to process the probate, the costs and statutory fees alone, which are measured on the gross value of the asset (not the equity), would exceed $15,000.00. With more in minimum costs and fees to handle the matter, what would remain in the estate? Under these circumstances, nothing would be left for the heirs or beneficiaries. Worse yet, the executor could easily lose money filing the proceeding, especially if non-probate assets (such as the administrator’s personal assets) are used fund the administration process.
It is entirely possible that other assets justify or require a probate filing. It is also possible that an administrator can negotiate to reduce outstanding loan balances which would warrant a probate filing. Painful as it may seem, however, sometimes the best course of action may be to do nothing. Naturally, such an important decision should never be made without deliberate consideration, counsel and an understanding of the personal risks associated with electing to lose the real property to the lender.
On a personal note ... are you ready?
I lost my beloved father last week. With him my family lost a piece of our collective heart and soul. Relatively young and healthy, my father’s vicious illness was as swift as it was unexpected. A little over three weeks ago, my father returned from a short vacation with flu-like symptoms and a few days later checked into the hospital. So powerful was this disease that we almost lost my father twice in the first week after his diagnosis. Two weeks after his admission to the hospital, my father was gone. Despite my pain, I was more fortunate than most because at least I was able to say goodbye.
During his final weeks, our family struggled to cope with numerous issues including simply understanding his disease and helping him manage a course of treatment. Despite having a brother in the pharmaceutical business, we toiled to understand the complex medical vernacular and on more than one occasion, finished a doctor consultation only to realize that we were still no closer to understanding the challenges my father was facing. My father and all those around experienced the many of the stages of grieving. For those who have not been this close to such a loss, making decisions in this emotional pressure-cooker was incredibly draining.
After his passing, we were faced with another level of challenges that ranged from managing the details of his memorial to dealing with the grief and surprise of others who surrounded our lives. And it was only when the memorial was over that you begin to realize the incredible void left in his wake. Suddenly we were left to assist my mother with everything from the mundane (changing light bulbs) to the more immediate (how to manage on-line banking). Since those days, we have slowly coped and come to realize that these problems can be solved and life will go on. Knowing that my father had organized his affairs gave his family—especially my mother—great comfort during the most challenging period of her life.
I did not prepare my parents estate plan because of the obvious conflict of interest but also because my parents live in a state where I am not licensed to practice law. Until shortly before my father’s death, I never reviewed my parents’ estate plan although I had discussed its general components. As many children, I struggled with the mixed emotions of whether or not to more forcefully interject myself into the situation. Near the end, I was blessed to share with my parents their concerns and fears as to whether or not their affairs were in sufficient order. During our time of need, they discovered that their estate planning attorney had retired and was no longer available. Fortunately, with my professional experience and the assistance of a local friend, we were able to manage the process. In the end, my father’s affairs were in excellent shape, we will avoid the probate process and we were all grateful about my father’s forethought and consideration. Every week I see families that are not as fortunate or prepared as we were for this sad inevitability.
For most of us, we know not our ultimate fate; life is as short as it is sweet and the sands of time can slip through our fingers in an instant. Are you ready?
What is a PVP Attorney?
The abbreviation “PVP” is short for “Probate Volunteer Panel”, which is a panel of attorneys who register with the Los Angeles Superior Court to assist with the resolution of various probate proceedings. The PVP panel consists of attorneys who the court appoints in probate and family law matters, including conservatorships, guardianships and related proceedings. In a typical proceeding, a PVP attorney is appointed to represent the interests of the potential conservatee or ward.
In Los Angeles County, PVP attorneys are required to be members of the State Bar of California in good standing for each of the previous three years and have no pending disciplinary proceedings. The PVP attorney must also meet certain educational requirements and maintain proscribed levels of professional insurance. Within the panel, attorneys frequently designate special expertise and certain members are appointed to deal with particular issues such as special needs trusts, taxes, or complex litigation.
The PVP attorney’s compensation is usually paid either from the conservatee’s estate (if there are resources) or by the County of Los Angeles. As with any attorney, a PVP attorney is required to zealously represent the interests of his or her client. Having been appointed by the court, however, the PVP attorney is given a secondary duty: “The PVP attorney's secondary duty is to assist the court in the resolution of the matter to be decided.” Rule 10.85, Los Angeles County Superior Court Rules.
The interesting conundrum in conservatorship cases is this: the PVP attorney is appointed to defend the legal rights of a client, but those rights include the client’s right to form an attorney-client relationship with the attorney (i.e. the right to contract). If the allegations of the conservatorship petition are true, that the potential conservatee may not have legal capacity to enter into a contract, how can the attorney create an attorney-client relationship with his or her client? If the proposed client isn’t mentally competent, then how can an attorney rely on the client to state his or her desires? Likewise, if the conservatee is legally incompetent is it in his or her best interests to fight the conservatorship proceeding?
Thus the apparent rationale for the court proscribing a secondary role for the PVP attorney; the court wants the PVP attorney to assist the court with the resolution of the matter. The PVP attorney frequently functions like an arm of the court attempting to investigate the various allegations (especially in contested proceedings) and provide objective information about the status of circumstances affecting the welfare of the conservatee. Often the court looks to the PVP attorney to provide an objective, unvarnished assessment of the merits of the conservatorship proceeding.
Another frequently asked question is whether or not the proposed conservatee is entitled to retain an attorney of his or her own choosing. In my experience, the probate court generally prefers using the PVP attorney because of a level of trust associated with the PVP attorney for, among other things, having completed the educational requirements. The non-PVP attorney then must decide whether he or she believes that it is in the client’s best interest for them to continue as additional counsel. The risk posed by this non-PVP attorney is that if the client is found incompetent, he or she may have a difficult time being compensated for services or a demand may even be made for the return of previously paid compensation. A recent opinion of the California Court of Appeals, however, has advised that a prospective conservatee must be given an opportunity to explain why he or she wants to retain other counsel.
When performing his or her duties, the PVP attorney must balance the competing requirements to protect their client’s interests and their court-directed duty to resolve the proceeding. Generally, it is not in the best interests of a proposed conservatee to engage in protracted litigation regarding his or her mental state and most PVP attorneys (in my experience) work hard to find a resolution that is in the best interests of their client.
To paraphrase the Miranda warning, you did not need a PVP attorney but if you are a proposed conservatee, one will be appointed for you. If you are a party to these types of proceedings, how do you deal with a PVP attorney? In my bias opinion (as a current member of the PVP panel), it is usually in the best interests of all parties to fully cooperate with the PVP attorney. As charged by the Court, the PVP attorney has been appointed to “assist the court in the resolution of the matter ….”
New Ebay-Like Site Helps With Estate Administration
Likewise, trustees and administrators are often left with the emotionally challenging task of fairly dividing up a lifetime of personal property among beneficiaries or heirs. As the old adage goes, one person’s garbage is another person’s treasure. Some items particularly have little or no commercial value but immense personal value to the heirs or beneficiaries. How does one divide grandma’s favorite quilt among competing heirs without cutting it into pieces? The division of personal property can often be one of the more stressful aspects of estate administration.
Recently, a new web site has offered a creative solution bringing market forces to the equitable distribution of personal property. According to its promotional material, eDivvyup is an online auction site designed specifically to help with the division of the deceased personal’s property. Operating in a fashion similar to eBay, an auction on eDivvyup is a private auction restricted to invited participants. The trustee or administrator catalogs the deceased’s personal property and allows the beneficiaries or heirs who are interested to bid on it. As aptly stated on the eDivvyup web site, “While specific items may hold sentimental value for you, they are not worth the fighting and long-term damage to relationships.” Thus heirs and beneficiaries can express their true desire for particular items of personal property through the efficient application of market forces.
While not necessary or appropriate for every estate, the eDivvyup site appears to offer a novel solution to an age-old problem of dividing personal property that may be commercially worthless but emotionally priceless. According to the site, eDivvyup offers its services for $49.99 for the first 50 items and an additional 99 cents for each additional item listed. If you find yourself facing a King Solomon dilemma, eDivvyup may be just the solution.
Treated Like a Dog?
Now it appears that poor Trouble will not receive the entire gift and have to survive on a mere $2 million. Helmsley’s grandchildren alleged that Helmsley was not mentally competent when she signed the 2005 will which left the large bequest to Trouble. According to this article in the New York Post, a Manhattan judge approved an agreement to reduce Trouble’s inheritance from $12 million to $2 million. Under the new deal, $10 million of Trouble’s bequest will go to Helmsley’s large charitable foundation.
It seems only appropriate that Leona Helmsley, dubbed by some as the “Queen of Mean” would have an equally controversial animal. According to a former housekeeper, Trouble slept in Helmsley’s bed and was fed chef-prepared meals in porcelain bowls and silver trays. This same housekeeper actually sued Helmsley for nerve damage she allegedly suffered after being repeatedly bitten by the animal. Trouble’s care taker estimated Trouble’s annual expenses at $190,000 including an estimated $100,000 for the dog’s security squad (which was apparently warranted because of the alleged death threats against Trouble). Given that Trouble is already nine years old, Trouble’s trustees did not oppose the settlement, apparently believing $2 million was adequate for Trouble’s care.
June 15th is Elder Abuse Awareness Day!
In an effort to revise this worldwide attitude, in 2006 the United Nations declared June 15th to be World Elder Abuse Awareness day. The International Network for the Prevention of Elder Abuse has suggested wearing purple as a sign of support to prevent the problem of elder abuse. In Los Angeles, celebrities including Ed Asner, Art Linkletter, Michael Reagan, Los Angeles Police Department Police Chief William Bratton, have contributed to the film Saving our Parents which was released in April 2008.
Elder abuse is generally considered to include any knowing intentional or negligent act that results in harm to a vulnerable adult. Such harm can include but is not limited to emotional abuse, physical abuse, sexual abuse, exploitation, neglect or abandonment. Elder abuse is frequently attributed to care givers but in my estimation it is often more common within families. I have encountered numerous situations where family members attempt to misappropriate a senior’s assets for their own benefit in disregard for the senior who is no longer able to raise an adequate defense.
Another commonly recognized form of elder abuse is known as self-abuse. The typical self-abuse situation involves a senior who is no longer capable of managing his or her daily needs and, without involved family or support, the senior tolerates living in dangerous conditions. In the course of my practice, I have encountered numerous elderly individuals living in squalor simply because they were no longer able to understand their conditions or manage their affairs. Sometimes the senior’s deficiencies are physical (failing eyesight, lack of mobility), sometimes the limitations are mental (dementia, Alzheimer’s disease) and sometimes the deficiencies causing self-neglect are manifold.
So what can you do to help prevent elder abuse? I am a big fan of old fashion values: stay close to your loved ones, friends or neighbors who may vulnerable. It is always a good idea to be wary of any new person or organization who becomes involved in an elder’s life. Ask questions and speak up if you have concerns. If the concerns appear serious, call your local law enforcement agency. In Los Angeles County, we are also lucky enough to have a 24 hour Elder Abuse Hotline, (telephone (877) 4-R-SENIORS), which allows you to make confidential reports of suspected elder abuse. If the situation is not resolved to your satisfaction, it may also be useful to consider legal assistance including possibly a conservatorship for the senior in need.
Can I Avoid Probate by Placing My Child on Title to my Assets?
Under California law, joint tenancy includes what is referred to as the “right of survivorship” which means that when one tenant passes away, the asset transfers to the surviving tenant by operation of law. With a bank account, a surviving tenant can present a death certificate to the financial institution and remove the surviving tenant from the joint tenancy account. With real estate, the surviving tenant executes a form known as an affidavit of death of joint tenant which then places title solely in the name of the survivor. While these devices can work well with domestic partners or married couples (who are also bound by family law), they often fail when used with other parties such as children. In fact, using joint tenancy in these situations often creates more problems than it solves.
With respect to financial accounts, the decision to place another person on the account as a joint tenant grants an ownership interest in the entire account to the new joint tenant. The most obvious risk is that the new joint tenant has ownership over the entire account, and can clean it out almost immediately. While the original owner would have a legal claim against the new joint tenant under these circumstances, often you have to sue the joint tenant and find the missing assets before they will be returned (which is frequently challenging if not impossible in many cases). With respect to real estate, making such a transfer, unless accompanied by separate agreement, is frequently considered an irrevocable transfer. What this means is that if the original owner changes his or her mind about disposition, or wants to sell or refinance the property, the original owner will not be able to do so without the consent of the new tenant.
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The LifeLock Controversy: Is There No Protection Against Identity Theft?
A number of private organizations, including Citibank, have tried to remedy the identify theft problem but perhaps none with more confidence than LifeLock. In a series of nationally broadcast advertisements, LifeLock CEO Todd Davis brazenly broadcasted his name and social security number and dared anyone to steal his identity. According to this article, least 87 attempts have been made to misappropriate Mr. Davis’ identity and recently, one conniving person succeeded by convincing a pay-day lender to advance $500 based on Mr. Davis’ personal identification information. Now, customers in several states are suing claiming that LifeLock’s services don’t perform as advertised.
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