Personal Wealth Law News

It isn’t Bernie Madoff or the legion of individual advisors who have adopted his business techniques. It isn’t even the US Congress.

It’s health care. It’s the cost of health care, plus the complexity of dealing with our health care/health insurance system, plus time we will spend dealing with these problems.

It is no surprise to anyone that we have a complex health care delivery system in the US. We have excellent medical care, for most of us, but at a substantial cost in money and time.  At my law firm, we have a staff of people who deal with problems that come up regarding our health insurance coverage, and a committee whose task is deciding how we will deal with the constantly-increasing cost of medical coverage.  But it didn’t strike me that this was as great a problem in retirement until I interviewed a retired partner from my firm for a PBI seminar on retirement for lawyers.  This lawyer didn’t have any particular health problems, but he said that he spent a great deal of time in retirement dealing with health insurers and Medicare.  Health care in retirement is a complex system of programs and insurance, and it can be very costly.  He added that the biggest problem of people who retire comfortably in their mid to late 60s is that they will start to run out of money in their later 70s.  They are still probably better off than most retirees, but their plans for a comfortable retirement and to have something to pass on to children and grandchildren could be frustrated by the increasing costs of health care.  And it’s possible that those costs could increase further if the Medicare and Medicaid programs are cut back. 

In the future, a component of retirement and estate planning will have to be planning for health care in retirement in ways that do not bankrupt people or result in their having nothing left to pass on to the next generation.  There’s a business opportunity here: as an adjunct to planning to have a comfortable financial retirement and nest egg to pass on, a business model is needed to provide good medical care at reasonable prices in retirement. 

(Reprinted by permission of the Legal Intelligencer)

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This might be a good time to emphasize that it’s a trust fund.

The concept of one person or institution holding money in trust for someone else has been around for centuries.  Apparently, some people have misplaced their copies of Scott on Trusts and decided that being a trustee means you can pretty much do whatever you want, and pay a little or a lot of attention to your duties, as you see fit.  As a result, we have read reports of breathtaking embezzlements and inattention to trustee responsibilities, leading to failure of the purposes for which the trusts were set up.  But we don’t read in the popular press of less obvious wrongdoing, which can be equally damaging.

Here’s an example: an individual establishes a trust for the benefit of his descendants, and he funds it with stock of the company at which he spent his career.  He names two good friends as the trustees.  Over time, one of the trustees loses interest, and defers to the decision-making of the other trustee as to how the trust should be funded.  That trustee decides that since the settler funded the trust with a single stock, it should remain invested in that stock, despite the passage of many years and changes in the nature of the company.  In doing so, both trustees violate their duties, as well-defined in Pennsylvania law.  After some number of years, the beneficiaries begin a barrage of requests that the trustees diversify, which they refuse to do.  Naturally, the value of the company’s stock declines precipitously.  The trustees have failed to act prudently, which is the standard applicable to trustees.

There are many cases in which the judgment of trustees has been challenged, and trustees may have good reasons for their actions, and attempt to defend themselves in court.  These kind of situations are easily distinguishable from recent reports of out-and-out theft and misappropriation of funds, as well as entrusting funds to investment advisors who offer no explanation of their activities over periods of many years.  But there seems to be a common thread linking many of these trust problems.

That link seems to be, generally, a lack of professional trusteeship.  In recent years, people have moved away, in many cases, from the idea of having a bank or trust company as a trustee or co-trustee, often because they charge fees for their services.  If Uncle Charlie will serve as trustee at no charge, then why is it necessary to have an independent trustee?  Perhaps now we have an answer to that suggestion: we’d better be very sure that Uncle Charlie has the skill and understanding to serve as a trustee.  Many Uncle Charlies will be fully capable of serving as trustee, but it might be appropriate to have some independent party, like a bank or trust company, to offer guidance and judgment in the administration of trusts.  That won’t be a guarantee against problems such as the criminal activities reported recently, but it can add to trust administration an unbiased and professional perspective.  This won’t always be necessary, but it’s something to consider in trust planning.

(Reprinted by permission of the Legal Intelligencer)

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The world of estates litigation is certainly not boring. Sometimes it’s even about the money.

There are psychologists who provide a valuable service in trying to help families work through issues relating to inheritances. These kinds of issues often bring to the fore other issues that have been simmering for a while: why was one child chosen to be in the family business and another not; why one child got other advantages over a period of a lifetime; did one child plot to get on the good side of a parent to do better in the will?

It’s probably not possible to prevent intra-family disputes, and it’s not the lawyer’s task to become a substitute parent. It seems clear, however, that some of these problems are preventable. The prevention that can avoid them must be undertaken by the parents while they are still here. Sometimes that’s difficult to accomplish, because parents do not always want to share with their children their reasons for decisions made regarding the children and business interests. In addition, some parents are simply reluctant to discuss finances with their children. They may find it easier to say nothing and hope the children work things out. Like Scarlett O’Hara, they prefer to think about these things tomorrow.

As a number of commentators have suggested, it’s much better to discuss these issues openly, while the parents are able to explain the choices they have made. It’s probably also advisable to tell children how much they have and what their plans are for spending, saving and passing it on. It’s not easy to do that, and many parents will have kept their finances mostly secret from their children. But in many cases the result is the opposite of what the parents intended: money doesn’t make people happy or comfortable; it makes them crazy. So lawyers advising the parents would be well-advised to suggest disclosure to the children. The reaction might cause the parents to change their plans, perhaps in a way that attempts to head off trouble. In some situations, a family conference might be appropriate, and maybe such conferences should be held more than once. If talking through the problems or concerns among the family members doesn’t work, it might be time to call in a professional counselor.

As some philosopher, or at least a smart guy, said, not having money can make you miserable, but the opposite isn’t necessarily so: a lot of money won’t guarantee happiness. But at least talking it through can avoid some family disputes that end up in court.

(reprinted by permission of the Legal Intelligencer)

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