Proper Planning for Your Estate: DIY Mistakes, Capacity and Trust Funding, with Attorney Mark Abell

0:02 Well, we welcome back today one of my favorite guests we've had a few times in the past and on a couple different podcasts. Estate planning attorney, probate attorney in Southern California in the Riverside County area of Temecula Wine County, Mark Abell, is on our show again today. Mark, thank you for coming back today.

0:22 Bill, thanks for having me. I really appreciate it. And so we were we were chatting before we started about the estate planning kind of hot topics and one of the hot topics I see as a real estate agent all the time are kind of the do-it-yourself flavor of power of attorney to avoid probate, to avoid conservatorship, but then they find themselves in trouble. So, talk a little bit about you must get those same phone calls. How can I avoid doing a full estate plan and do it on the cheap, but then they get themselves kind of caught halfway in and stuck?

0:49 Yeah, so there's a lot of forms that are available. I think I was just in maybe Staples or Office Depot and they're even available, you know, in a pre-packaged form. A durable power of attorney, advanced healthcare directive, do-it-yourself will. So, oftentimes people will just grab some packages like these and fill them out. There's a few ways that they can potentially get themselves into trouble. One of the easiest ways that is first just an invalid execution. In California, wills need to be witnessed. So, oftentimes we'll get them where they're just notarized, vice versa, we'll have documents that are witnessed that should be notarized or just not even either of those. Additional ways of verifying that an individual actually signed document. So, a document can just fail in the execution right off the bat. One of the problems that we run into, particularly with durable financial powers of attorney, is that oftentimes these aren't really discovered until basically maybe you're in the beginning of a transaction, mid-transaction, escrows open, trying to close escrows, something of that nature. And so, that then needs to be remedied. One of the issues is that if somebody's operating under a durable financial power of attorney, that pretty much implies that the individual lacks capacity.

2:06 Right. and that is kind of the more serious issue that we sometimes run into, which is maybe the execution was correct in the document, but that person never had capacity to begin with, so the document's then challenged. Or maybe they lack capacity at the present moment to fix any procedural issues or deficiencies might present in the documents. So, unfortunately, one of the really only ways that we can remedy that is then going to court if we don't have any, you know, trust or anything that H put in place, and get a temporary conservatorship issued on an ex parte basis. An ex parte just means we're doing it in a shortened period of time to maybe you have some type of imminent deadline approaching. or if we do a what we call a permanent, even though it's technically just a full

2:56 [snorts] conservatorship. So, both of those obviously take time, they take notice, and additional expense that can often times just jam up the any type of transaction that we're seeing these days.

3:06 I love when I get, you know, a prospective customer call me and say, "Well, it's not really a problem. We can get this fixed by filing a petition with the court." And I'm like, "Well, yeah, I mean, technically it would probate, but you file that petition in probate court, and it's a probate judge, and the gears of the process are about the same. So, yeah, you avoid probate, I guess, kind of, but you really don't. And I think all this speaks to, well, a lot of these procedures can be used properly. If they're not used properly, they really can be ineffective and or even well, ineffective, and lead you down a road that you're not going to get across.

3:43 Yeah, I think that's right. one of the key issues I think comes up more and more now in my real estate practice, I'm sure it comes into the law as well, is capacity issues as it relates to conservatorships. It just seems that for a variety of reasons, people living longer, maybe it's the economy. I also think there's a blend of, you know, our population is more international and customs are different and laws are different. But it just seems that more and more we have issues of people who are in that phase. Like were they competent when they signed the document? Are they competent now to fix the document? So what are some of the things if I was a as a real estate agent or if I was a, you know, homeowner and I had a parent who wanted to deed a property or maybe a parent a sibling shows me a deed that was done. What are some of the things we look for that might cause me to question whether or not the person had the capacity the time to actually sign the document. What are things like is the writing being scribbled? Is that is that a legitimate issue to say that's not their signature? It's obviously changed in the last 10 years.

4:43 Yeah, so there's a few things that we would want to probably unpack there. So basically as a real estate a licensed real estate salesperson, that's probably outside the scope of services that you would want to offer. Even as a real estate licensed real estate broker, it's outside of the services you would want to offer. So you probably want to refer that out to somebody with a little more expertise. Even as an attorney, I mean we'll run some basic tests not tests. I don't even want to say that. But we'll ask basic questions to basically identify whether [snorts] the individual has varying levels of capacity for certain types of documents because there's different levels of capacity depending on the nature of what that individual is preparing or asking to be prepared. And some of the questions that we'll want to know basically are, you know, are they alert and oriented to where they're at, who they are, what they have, what they're doing, kind of legal effect of what they're doing, and also who their heirs at law would be, who their beneficiaries would be, things of that nature. And that's just kind of like a baseline preliminary assessment that we provide. And then if there's any questions, even as attorneys, then we'll often refer them out to maybe a treating physician that this individual has seen for an extended period of time that has a baseline. Or we can often refer out to geriatric psychiatrists or neuropsychiatrists to perform a more thorough cognitive assessment. Okay.

6:18 There's a few of those that they'll rely on sometimes called the Montreal Cognitive Assessment, things like that. And that will establish basically whether this individual has, you know, capacity at the time that they're will that they'll be signing documents.

6:32 It also has happened to me where the party changed over time of day. Like, you know, I would go to their house at 11:00 in the morning. And yeah, they have a cup of coffee. They're up. They watch the program. They went for a walk. They watered the plants. I show up. We talk about the real estate. They seem And I'd have family member call me at 3:00 in the afternoon and say, "What are you doing?" I said, "What do you mean? Didn't you notice they were, you know, cognitively impaired?" And I said, "No, they seemed older, but they seemed to understand what I was talking about." And I do think in that case they, you know, would get tired during the day or I'm not sure the mechanics of it physically, but there is some issue that you have to deal with and be aware of at least that as a real estate agent or as a as a family in a probate situation or whatever, trust administration, that it might change in the time of day. And so you have to protect yourself. So talk a little bit, you know, let's now kind of switch hats a little bit. For somebody who's an executor of an estate of a probate maybe or of a trust, you know, they need to both, you know, act in the best interest for the, you know, the party as well as be able to document it. So what are some of the things that they need to be aware of? I guess it's the same thing, right? They see these clues, they need to raise their hand and get professional in rather than make any kind of assessment on their own.

7:47 Yeah, exactly. So, to kind of go back to the first issues that you discussed, basically it is not uncommon to have individuals capacity kind of fluctuate maybe sometimes depending on maybe the condition that they have. So, we've seen it with actually urinary tract infections can impact that, medications that they take and

8:10 Right. what they can eat and so the blood sugar can impact that. And then also if there's any type of cognitive impairment, but also if they experience a thing that is colloquially known as sundowners where the individual might have less capacity during the nighttime or have an instance where they almost have like insomnia-like symptoms and they're up late at night, very active, things like that. So, those are all issues that you might want to be aware of. and again, those are kind of out of the scope of anything that attorneys would diagnose, but you know, we would want to basically have an expert in there to keep an eye on things. And then as far as an executor

8:47 [clears throat] under a will, you know, that is a fiduciary position. so, obviously they have a fiduciary obligation to ensure that they're looking out for the interest of the estate. Same thing if you're acting as an agent under a durable financial power of attorney, you're in a fiduciary position for the individual that is incapacitated at point or has assigned you as the agent and often times called the principal. And then also as a trustee, you know, you're also in a fiduciary capacity for the beneficiaries' interests, so. Few things you might want to keep out in mind is to just document everything including attempts to discussions with you know, if there's sometimes in-home health care workers, things of that nature.

9:33 It's kind of so much easier nowadays to document, you know, you can do Zoom calls and automatically record and you have a you have a you know audio version of it, video version of it, text version of it. It just seems like there's no excuse not to on important professional matters take notes and be able to you know rely on them to you know prove your decisions or to offer to a professional say hey, here's the conversation I had what your thoughts. I think that more and more these things are free and available to us have to do that. Another thing that has come up more often in my career, I've been around for a while, I also again I think it's a it's a cultural thing particularly I think in the Latin culture with seniors, juniors or not designated which one it is and I feel like maybe in third world countries it's more common to kind of you know play attorney on your own or kind of skirt around the rules a little bit by changing names and yet it can cause problems and backfire. I was in a case for multimilion dollar property where you know it almost backfired but still it cost them a lot of money trying to resolve the matter where they made the deed but left off junior or senior and the middle initial. so talk a little bit about you know again cases you've seen this and what can be done once that transition's made and there's some question what are some of the alternatives they have to kind of clean up the mess?

10:49 Yeah, so I haven't specifically experienced that particular scenario that you're discussing. we do have a lot of individuals where you know we have a named as a senior and then a junior, a third, I've also gone down as far as like a fourth in line. so you just basically want to verify at least for us that there's different designations in the documents so you can say you know as father to son or to grandson or something of that nature and then also we like to include birth dates. if there are middle names or some distinguishing factors that way we don't run into a situation where it's like you know John Doe is giving to John Doe but one of them's actually senior, one of them's a junior. there's some other type of familial relationship in between those two individuals. and the reason for that obviously is to avoid any type of ambiguity. you know, oftentimes the family says, "Oh, well, everybody already knows, you know, or they're referred to excuse me as the son." It's like, "Oh, you know, this is just junior or Bobby." Or even though that's not actually that legal name of the son, you know, but just to distinguish it because they have the same names.

12:00 Right. so, we just want to make sure that everything's clear and precise and set forth from the outset. And a lot of times that's basically going to avoid any of those types of issues. And then also you know, it helps too with the notarization. you know, although the notary block just essentially says that hey, they're just comparing a license and identification for an individual with who they state they are and you know, they're proved based on satisfactory evidence to be that individual. So, they're not going really further in depth than that. But, I mean, we just want to make sure that those are clear. If there is an additional distinguishing item that we can put in there like a middle initial or a junior or something of that nature.

12:37 So, as perfect as our mistakes and problems indicate the more generic business on estate planning, I think that as a real estate agent, while initially the fee for an estate plan often is significant, it's not my money, it's their you know, the customer's money. but I also find increasingly that good estate planning is cheap compared to the alternative of cleaning up messes after the fact that might not have been anticipated and could have been simply done and or service delivered in a in a professional way versus not professional. So, I'm sure and you know, you're an attorney, you're not a salesman, I'm a salesman. I maintain anybody who owns a house in California should have an estate plan, probably includes a trust. certainly they should at least meet with attorney to discuss that or not. and I also would say, and I know we might disagree on this, that a bad plan is better than no plan, but better get a bad plan and fix it than to leave it bad because that just creates other problems or can be worse off. But talk a bit about how you view the value you could customer. I mean, they're writing a big check up front for something that they may not ever need or may It's like insurance or may not need for years. Yet, if done properly, you're saving them multiples, 10, 20, 50, 100 times the money they're spending in attorney's fees and aggravation and problems. So, talk a bit about how you know, not to put you as a salesman to sell the customer, but yourself in your own mind, how do you see the value you create in exchange for the cost and how the relationship sits?

14:13 [snorts] Yeah, so I mean, I'm never trying to sell anybody. I'm lucky fortunate enough to have enough clientele that I mean, if you want to use my services, great. but I'm not in the business of selling people. I'm in the business of offering good advice or tailored to that individual after we've obtained the information from them, created an attorney-client relationship, and [snorts] had a thorough discussion about what they have and what they want to have had, you know. so, some of the things that we need to consider that individuals may not consider is you're dealing with multiple layers of things we're trying to assist them with. So, one would be it's not really a concern at the moment, sometimes it is, but a federal estate tax, okay? Right now, the exemption is so high that it's really only affecting fraction of a percentage of people in the country. a second thing that we're trying to deal with is basically you know, often times, especially in California, if an individual owns real estate, is avoiding a reassessment on properties, okay? And if you're trying to just do your planning yourself, you may not know some of the tools we have available to us in order to avoid a reassessment so that way the property can be passed without that. And that [clears throat] is honestly going to be a huge burden on a subsequent generation because we do have a lot of properties where one generation bought a property tax basis was extremely low and affordable and then it gets reassessed on a transfer and now it is unaffordable for the heirs and they're really forced in a place where it's like, you know, we'd love to have this as a, you know, second home, rental, vacation, etc. But we obviously just can't afford it to get it going again. So, you know, they force a sale on it. And then another thing that we want to avoid is not just on a tax issue, but it's also maybe the potential for creating some type of asset protection for individuals that they may not be familiar with. And then also finally just avoiding going through the pain and hassle of dealing with California Probate Code through an open court probate process or litigation. And there's just various tools we have available to us that, you know, if you're not an expert in it or you're not trained in or anything like that, you just may not you just potentially maybe unaware of them.

16:28 You know, on the property tax I think people don't understand well it's a it's a nominal rate. The assessment can be 10, 20, 50 times higher. so it's an assessment and it's also an assessment that only goes up a little bit every year. So, unlike a tax an income tax where you pay one time, every year you're paying the higher assessment until you sell the property potentially if you don't deal with it right. And I and I also found this is fascinating. I talked to a guy who's in the LA County Assessor's office. As a real estate agent I'm careful the customer fills out a form if it's a exempt transaction with a sale and it goes through. But it seems to me every customer calls me saying my property is reassessed, why is that? I filled out the form correctly. And what I found out was that the property tax assessor in LA County takes 18 months 18 month backlog of these forms. So they just had first default and assume you didn't apply the exemption and then you I guess you have to file your appeal or else you lose that right and then 18 months later go oh yeah you're right you did fill out that paper a year and a half ago that we made you fill out. Am I crazy? Is that how they're working in this is what we do in the city of Los Angeles? Is this the That's what it seems like to me as a as an agent.

17:42 Yeah so I can't really speak on behalf of the LA County Assessor or the Tax Collector and how they operate but one thing that we have seen is that there is a very short statutory time period in order for you to appeal an assessment and often times there is a basis for an exclusion for reassessment [snorts] that maybe they didn't check the correct box

18:04 Right. the individual preparing the form or maybe they filled out the form in an incorrect manner or incomplete and submitted it and there's just errors on it that maybe what we call scrivener's error typographical error or checking an incorrect exemption that doesn't apply when maybe they do have another separate exemption that would apply but by the time they would get notice of it maybe it you know they were on vacation they didn't check the mail for a period of time they sat around on a week and you know sometimes that time period is blown and once it's over I mean I don't know really it's it's much more difficult if anything that they could do and then another issue that we've run across too which you kind of brought up is that there's a thing called an escape assessment where if the property should have been reassessed by a certain date but it was not and some reasons for that maybe well individual A that owned the property passed away but they didn't notify the county until a period of time later well if they didn't claim an exemption the property should have been reassessed at the date of death potentially and the county will go back in time and say oh owe us for this period of time." You know, so we're often times get you know, everyone's surprised to receive this bill, you know, and it's holding up escrow, holding up a sale, holding up whatever, you know, and what do we do with this?

19:28 And I find those happen on like properties where there's like five siblings and one died like 10 years ago. Right. And the son of the of the decedent, you know, has been signing off on whatever whoever it was the mortgage payments or they're all Everyone was happy, all got along, and they go to sell the property and realize that that share has tremendous tax but and then I think nowadays it also affects the other ownership interests as well. I think if one owner is assessed, the other ones can't be again, I'm not an expert in this Here's what I do know. When my when my client signs 10,000 pieces of paper in a in a real estate escrow transaction, that one piece of paper on the property tax exemption is really important. And I always tell them, "Talk to your attorney about this. Make sure you get this one right." A lot of the other forms are just You got it. Yes, I got it. please note there's no lead paint. Okay, there's no lead paint. But this one is big and if we get it wrong, it can be thousands or tens of thousands of dollars a year or make you sell property you otherwise don't want to sell.

20:32 Yeah. Yeah, that is true because a lot of times if there's a initial funding and you're going through an escrow, you're signing pages of documents or if you're doing a refinancing, you're

20:40 [snorts] signing pages of documents with you know, maybe they'll send just a notary to your house or something, that stack of documents two inches thick. Right. Yeah, a large portion of that is going to be the mortgage, the note, and the deed of trust that's associated with it and you're only going to have one page that's your grant deed. Sometimes two if the legal description extends beyond to the additional pages or if you have HOA exemptions or CCNRs or whatever they're And then second, your preliminary change of ownership report, which is going to basically say that it's exempt from reassessment because it's a refinance or for whatever reason that you're selecting, that's also an additional two pages. I mean, sometimes depending on the county, they'll include four pages, but two of those pages are just instructions that, you know, you should read. you know, if you ask the notary, the notary's going to say, "I'm just here for on behalf of mortgage broker X, Y, and Z." You know, so it does behoove the individual or individuals refinancing or getting their first primary financing on personal real property, to basically just take some time to actually figure out, you know, how do they want to vest title? one, and then what implications would that have with respect to what happens if I do become incapacitated, but I need to remain in the residence? And two, what happens if I pass away? How's that going to impact maybe future generations down the line?

22:01 One of the things that's changed in this industry, my father was an attorney, and a small firm, he had two partners, one did wills and trusts. In those days, they had like a vault where they would keep the wills. Now, this goes back in the '60s and '70s and '80s. And I think that was the norm. I think attorneys kind of were expected to hold the documents. And then there was a time period where none of them held any documents. It seems like or the vast majority didn't for liability reasons. And now with electronic options, it seems like it's obviously easier to have multiple copies, multiple versions, but multiple copies of the of the final documents. And it seems like some attorneys are of a mind, "Yes, I do want to keep a copy as well as give, you know, originals and electronic to the client." Where do you fall out on that as far as making sure your client's empowered, but at the same time, you don't want to have multiple versions, you don't want to have confusion. so, how do you how do you support your customers with the storage of documents and help them or guide them in that process?

22:55 Yeah, we've kind of gone the whole gamut. So, we have had individuals who didn't want us to retain documents. more recently, what we do essentially is the client will retain the originals.

23:08 Okay. that gives them basically the freedom to take them to wherever they want to go. If they wanted to do an amendment, if they want to do a full restatement, if they want to use somebody else, they already have those documents in place. They don't have to go search for them and find them in their office or anything of that nature. we do keep electronic PDF copy of the latest executed versions of everything for record keeping and also to ensure that they have access to that too if they need it. They might be somewhere. [snorts] if you do that, you just want to ensure that, you know, your attorney is using basically we have storage electronic storage that has SSL security and essentially be the same as you know, any type of institution that you'd be doing dealing financial data or, you know, information that's private from your you don't want to just have them, you know, going on like unsecured network or something of that nature. So, that's just a few precautions you might want to make sure that you have in place with that. So.

24:11 The other part that real estate agents get involved with and that get involved with regularly, you know, the classic cases you go to customer's house and I'll go, "Well, I checked online and I noticed you hold title as Bob and Mary Smith." "Oh, no, we have a trust." And I'll go, "That's just I have the deed here. I checked the latest version of it. You sure?" "Oh, yeah, no, we have a trust." They go back, they pull out their this beautiful binder, beautiful Naugahyde or leather. They open it up and there on the front page a letter from the attorney saying, "Oh, don't forget to execute this document and record it whether it be the deed to the property and or the deed to the trust itself." And I mean, I most recently have a $40 million estate with about 20 pieces of property and a whole company where, you know, legally speaking, it's all interesting information, but it has no legal basis at all cuz it was never executed, right? And it seems like attorneys have different strategies on follow-up. Of course, you can't make a customer do something. You never know if they really don't want to do it for whatever reason. So, how do you both encourage people to complete something, which is, you know, execute the good advice you've given them, but at the same time, you can't be so heavy-handed as to, you know, force them. That's not your role, either. So, how do you kind of see that and what role do you play in that process?

25:23 Yeah, that's a good question. So, I mean, you have to think of it if you're doing a trust-based estate plan, I like to make the analogy that basically like creating a living irrevocable trust is like opening a bank account, but it like you said, if you don't make any deposits into it, you're never going to earn any interest or the benefit of having that. you know, it's the same as having a bank account but keeping all your cash under the mattress. so, for our practice, what we'll do is if we do a trust-based estate plan, we are going to fund the California real estate into either the trust or into the LLC, and then we'll do the subsequent work that's necessary for that. with respect to out-of-state property,

26:05 [clears throat] I have a bunch of attorneys and other individuals that we'll refer them out to. they want to go forward with that, and they can have that individual fund out-of-state real estate into the trust and things like that. So, we try to make sure that they leave with a fully executed document that is also fully funded as well to avoid having to subsequently do what we call an 850 petition in California if there's California real property involved, where you basically say, "Well, it was always kind of this intent of the deceased person, and now they passed away." we try to get it back into the trust. Often times, we'll see that, too, where maybe you might have a fully funded trust to start off with, but maybe the individuals sell a parcel property and buy a subsequent parcel property, and it never makes it into the trust. or they'll do a refinance or something on a primary residence and the refinance company will require them to take it outside of the trust, refinance the property in the names of individuals and then say, "Oh yeah, now that you know, everything's closed, put it back into the trust on your own." You know, and sometimes life gets busy and they forget to do that. So,

27:13 Yeah, don't do that if you can. Yeah, we see that all the time, yeah. Don't do that. call me, I'll talk you out of that one cuz I see that one. You also lose title insurance, right? You have an insured document perhaps if you bought the property with a trust and now you deed it out, the deed back in doesn't have title insurance, which means all kinds of possibility, all you know, possible chain challenges to the signatures and status and capacity issues now become an issue where they weren't an issue before. So, and you mentioned fund that you they leave with a funded trust. So, does that mean do you make sure the customer executes the deeds and do you do that yourself? Do you use a service to make sure they you know, execute the grant deeds? Do you record them or do you follow up with them, make sure they get recorded? What's that process look like in your office?

27:56 Yeah, so depending on the plan that we pick, let's say we're doing a trust-based estate plan and they want California real estate funded into it, then we're going to also have them We're going to prepare deeds. we're going to basically ensure that they're executed. we want to ensure that preliminary change of ownership reports also executed and there's a an exemption from reassessment. and then other counties require things maybe like a document a lot of people don't know this, but there's also a thing called a documentary transfer tax sometimes that's imposed. so, we want to get an exemption for that if there's one available. And then there's also an SB 2 housing fee and sometimes we can get an exemption for that on some parcels of real property. So, we'll make sure that any exemption that we can get is obtained and then we'll actually go and have it recorded and then they'll get the recorded copy back. the reason we do that is that way we at least know that there's no problem.

28:55 You know, I think if there's one reason to use an attorney versus the do-it-yourself services, and I'm sure the do-it-yourself services they have reams of attorneys you know, firms that review their documents and they you know, they do 10 they do 10 million estates a year, so they're all great. But it's worthless pretty much. I don't say worthless, but not worth much. If you don't execute the documents and put and fund the trust. And this is where I think having a personal relationship with an attorney is so valuable. And you know, to your point with the 850 petition, I hear this all the time. Oh, it's no big deal. I can get a Heggstad petition. And I'll say, well, true, but in Calif at least in LA County, the filing date from when you filed to your hearing date is 6 months. That's assuming you get the hearing the first time around. I mean, it's like a probate. You're paying an attorney. You got it's going to take forever. It's going to be uncomfortable. And so, maybe it's better than a full probate somewhat. Maybe not. Some attorneys charge more for Heggstad petitions than they do for or 850 petitions than they do for probate. So, it's certainly cheaper just to do it right the first time, right? I think that's that's the moral of the story here.

30:02 Yeah, I'd agree with that. Like most things. Yeah, like everything else, a little preparation. Well, look, Mark, we I really appreciate your time. I got a little bit longer than we had planned on. And so, I just want to you know, thank you again for talking to us about the important issues of the day regarding avoiding probate through proper estate planning. Mark Abell is an attorney in Riverside County, Temecula, and has been on the program several times. And then if you want to get more information from him, the website is trustabell.com, t r u s t a b e l. And his contact information is down below. Mark, thanks so much for joining us again today. I really appreciate it.

30:36 Thank you, Bill. I really appreciate it. And for the rest of us, this is Probate Weekly. We get together every week with probate attorneys, trust attorneys to help us be better and more effective with our clients. if I can help in any way, please reach out at Bill Gross Probate in social media. As always, make today your best day ever. Thanks so much.