Author Archives: Paul Deloughery

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Photo of kayak surfer on river in California. A good kayaker is like a family dynasty that can ride the waves on the open water.

How to Create a Family Dynasty

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I’ve been studying how to create a family dynasty for the last 10 years. It turns out that there are 8 Keys to a family’s long term success. I’ll explain the importance of these 8 Keys by telling this story. In 2012, I was fortunate to spend a couple of days with the adventure photographer, writer, filmmaker and wilderness guide Michael Powers in Half Moon Bay, California – about 40 miles south of San Francisco. Michael is an avid ocean kayaker, and prefers riding the big waves at Half Moon Bay on his kayak—what’s called kayak surfing.

Michael took me kayak surfing at Mavericks where the waves routinely crest at 25 feet but can get to 60 feet! I had never before been kayaking, and I had never been kayaking on the ocean, let alone a destination for extreme surfers. What I learned is that you need to have balance, momentum and persistence to get past the initial waves, which are called “breakers.”

The breakers treated me like a homeless person at a country club brunch. At least once I remember tipping over with my legs still stuck in the kayak and—being the beginner I was—trying to figure out how to extract myself while holding my breath and trying to avoid leaving parts of my face among the submerged sand and rocks.

About 50 feet from shore, the waves turned into giant swells. If you timed it just right, and had your kayak angled just right, you could glide down these swells like you were sledding. If not, well you would be trying to get back on a kayak while the giant waves kept coming at you, without being able to touch the ground.

Here’s what I found most interesting. There is a distinct difference between the area close to shore, where the breakers keep trying to push you back, and the open water. Sure there are dangers in the open water as well. But the rules are different. In the open water, you can focus on having fun. But close to shore, you just keep getting pushed back.

This reminds me of how most families are in terms of being able to preserve and grow their wealth from generation to generation. From a long-term (multi-generational) wealth enhancement standpoint, most families never get past the breakers. That’s why having a family dynasty is so rare. Until fairly recently, it has required a minimum of roughly $50 million for a family to be able to implement all of the systems necessary for a family to prosper indefinitely (especially the family office component). But things have now changed. With the help of new options—multi-family offices, outsourcing companies, and new technologies—families no longer need to hire full time staff to ensure their long-term success.

Most families prosper for a lifetime, and then leave some measure of wealth to their kids. If the family is somewhat sophisticated or owns a profitable business, the second generation may be able to hold onto that wealth for their lifetimes. But the initial wealth rarely survives to the end of the third generation.

At Half Moon Bay, I was able to get past the breakers when I was kayaking for the first time, largely because I had a good coach. And I believe that families can get past the financial breakers and create long-term wealth that will survive more than 100 years—even with less than $50 million in net worth—if they follow the steps of other families that have made it.

In the coming blog posts, I will introduce the 8 Keys to a family’s long term success (i.e., how to create a family dynasty). For more information, go to EachGenerationStronger.com.


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Photo of Donald Trump and his daughter Ivanka at property that will probably go into blind trust

Trump cannot avoid conflict with “Blind Trust”

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There is been a lot of discussion in the news lately about Donald Trump needing to transfer his investments to a blind trust. For example, the Wall Street Journal suggested in a November 17, 2016 editorial that Donald Trump transfer his real estate holdings so he does not have a conflict of interest in serving as President of the U.S. The conflict of interest concern is that Mr. Trump could push for legislation that will benefit his businesses, thus making his family money, whether or not it is good for the U.S.

So, what is a blind trust anyway? A “blind trust” is a common name for a variety of irrevocable trust in which a person names an independent person to manage the person’s assets. Let me start from the basics and explain so you understand.

A trust is a type of legal vehicle roughly similar to a corporation. You can’t feel or touch a trust. But it exists from a legal standpoint. A trust can own buildings and property. It can sue people in court. It can buy and sell things. It can hire and fire people.

You may have heard of a “living trust.” That’s a colloquial name for a trust that is commonly created by people who own a house and investments and want to avoid probate when they die. It is “revocable” because if you create one, you want to be able to make changes. Maybe you want to add a beneficiary. Or maybe you no longer like the trustee you named to take over when you die, so you insert a new person.

A blind trust is a type of irrevocable trust, meaning that (officially) it cannot be changed by the person who created it. I put the word “officially” in parentheses because there are indirect loopholes. With a blind trust, you create the irrevocable trust, but you remain the beneficiary. Here’s how a blind trust basically works:

  • You go to a lawyer (don’t try doing this on your own) to write the trust document.
  • You are the “grantor” or “trustor” or “creator”, which are all words that mean the same thing. They mean that you are creating the trust.
  • You choose a trustee who is a person other than yourself. The best bet is usually to name a trust company.
  • For a blind trust, you would name yourself as the beneficiary. An asset protection trust is a type of blind trust. Otherwise, you could name your children or other people as the beneficiaries; but then it wouldn’t be a blind trust.

All the news media is going crazy over talk about a “blind trust” as a way of eliminating the potential conflict of interest for Donald Trump. I agree that Mr. Trump can’t transfer his assets to a trust naming his children as beneficiaries. That would trigger a gift tax of roughly 50%.

But if Mr. Trump transfers his holdings to a “blind trust”, he is a smart person and will have checks and balances. He’s not going to risk having some independent company in control and making bad decisions. He will name a Trust Protector, which is an (officially) independent person with the power to make changes to the trust, add/remove beneficiaries, add/remove trustees, and so on. This independent Trust Protector will be someone loyal to Mr. Trump. And Mr. Trump will have the ability to replace the Trust Protector. So even if Mr. Trump is (officially) not managing his properties and businesses, he will have indirect control over them. And he will still be the beneficiary.

Again, the only other way for Mr. Trump to completely divest himself of his businesses is to pay a 50% gift tax and transfer everything to a trust for his kids. But a real estate investor has most of his wealth tied up in real estate. He can’t write a check for 50% of his wealth. So Mr. Trump is stuck. He MUST remain at least someone in control of all of his wealth.

He can do the best he can to transfer his investments to a blind trust. But he will still have some sort of control.

Mr. Trump will probably transfer his investments to a blind trust, and everyone will breathe a sigh of relief. He will have (officially) set things aside so he is no longer in control. But he will still have indirect control, such as being able to ask the Trust Protector to ask the trustee to do things he wants. There is no other way.

That being said, keep in mind that what is good for Mr. Trump as a real estate investor is going to be good for other real estate investors as well. Maybe the lesson out of all of this is to start investing in real estate.


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Pretty young lady in her 20s with white blouse is sitting reading a book. Perhaps her parents are helping support her now. But what will happen in the future after her parents have passed away?

Will my kids be able to enjoy the same lifestyle?

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“Will my kids be able to enjoy the same lifestyle as me?” That’s a question that many people worth $10 million U.S. or less have. How do I know this? Because I’ve been an estate planning attorney since 2001. A number of my clients are worth around $10 million. If your net worth is around $10 million, you’re pretty well off. But you’re not quite well off enough to put your children in a position that they will never have to work. (This is mentioned in a 2014 article in The Telegraph.) Also, if you’re living off investments, you realize that there’s always a risk that your investments could shrink in value.

But here’s the good news. There is something you can do. At least help your kids get the most benefit from their inheritance. The fact is that most kids of wealthy families squander their inheritance. However, I do have a couple of practical suggestions for you. Now I’m not a fan of quick fixes because usually they don’t work. But here are a number of specific things you can do to help ensure that your kids will be able to enjoy a good lifestyle after you’re gone:

Don’t give the money to your kids immediately when you’re gone.

It’s so common to have a will or trust that says something like “After I have died, I want everything to go to my children equally.” This might work for a very modest estate. But if your estate is worth over $500,000 I would draft the will or trust so that your wealth remains in trust for your kids’ benefit. They can receive discretionary distributions. You will have a neutral trustee to administer the trust. The trust language will encourage your kids to continue to be productive. This will help make the money last as long as possible. WHY IS THIS IMPORTANT?  Because this is the only way to ensure that your kids don’t (a) squander their inheritance right away or (b) fight over how things are divided.

Be careful of Powers of Appointment.

One such potential landmine is what’s called a power of appointment. These are added to trusts for tax purposes. But they also allow the person with the power to change the beneficiaries. The result is it the love ones you want wanted to receive everything after you’re gone may end up getting nothing. (Obviously, your ability to help your kids enjoy the same lifestyle in the future is hampered if your wealth somehow gets transferred to someone else. You’d be surprised at how often this actually happens.) It’s probably best to have an estate planning attorney who also does probate litigation. Such an attorney is going to have a better idea of what actually works in the real world (in terms of drafting your trust and other estate plan documents).

Third, have an alternative dispute resolution provision in the trust and other documents.

Require that anyone who is to receive any benefits from the estate or trust agrees to at least attempt resolving issues without going to court. This will greatly reduce the likelihood of your loved ones having to hire attorneys to sort out legal issues after you’re gone.

Finally, make sure your trust appoints a trust protector.

his is a neutral person who can make changes as necessary. This is another way of preventing your loved ones from going to court to resolve conflicts. For example, if you choose one child to be trustee, maybe that child will make self-serving choices about dividing personal property (family heirlooms, etc.). This can cause enormous tension in the family. A trust protector can remove that child as trustee and insert a neutral trustee to dissolve the conflict.

This is just a short list of things you can do to help ensure that your kids will enjoy your same lifestyle after you’re gone. Having a neutral trustee is very important. People who suddenly come into money and up usually squandering it. There’s no perfect solution that fits every situation. But these are some steps that I have seen work time after time.

If you have any questions, call us at 602-443-4888 or email me at paul@magellanlawfirm.com.


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Girl holding paper airplane dreaming big about being a pilot. Parenting means teaching a child like this to dream big..

Parenting: Raising children to be motivated

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How do wealthy people raise their children to become self-motivated and resilient? The short answer is that rich parents teach their kids three main things: (1) to dream big and take risks, (2) to guard their money and spend it strategically, and (3) not to be nostalgic, but to focus on the future. In this blog, we’re going to focus on the first part: dream big. Parenting with a focus on these three steps will help prevent kids from becoming dependent on the family’s money.

Teaching kids to be risk takers.

Wealthy people teach their kids something different. The central theme to their parenting style can be summed up in one way: Be A Risk-Taker

This means that wealthy families raise their kids to look at life the way it should be played in a bold and fearless manner; that there is nothing wrong with thinking big.

This, of course, makes their kids grow up thinking that they can be anything they want to be if they become risk-takers. This is why they usually get into the business world not in support-type of positions, but in front-office positions.

In these positions they are at the forefront of making the actual revenue for the organizations and at the same time they make a lot of money for themselves. This also means that they are the kind of kids that will grow up and go for careers that are painful in the beginning, but over time that pain becomes worth it. Those careers include being investment bankers, money managers, entrepreneurs, investors, high-level government positions, etc.

Teaching kids to guard their money and spend it strategically.

This makes the kids of wealthy parents not spend money on short-term endeavors as much as their non-wealthy counterparts. Even if spending that money will provide comfort, they will not spend money easily. Therefore they are more likely to grow up to spend more on long-term endeavors and less on short-term endeavors, which overall helps to keep their family wealthy for the next generation.

This has implications for estate planning. We don’t just focus on simply transferring wealth. Getting a big windfall doesn’t always help motivate a person. Rather, we make the money available in a trust, but without outright distributions. This is what wealthier families do. This parenting advice applies to grown up children as well. I’ve seen too often that middle-aged “kids” get an inheritance, quit their jobs, go on lavish vacations, and then have to go back to work because they have no retirement savings.

Wealthy families raise their kids not to be nostalgic.

This means that they teach their kids not to ponder about better times in the past. Wealthy parents do this in the hopes of making their kids always think about the future and to always have a forward-thinking process. The hope is to make their kids become problem-solvers and improve on other people’s lives so that they can move on into the future and not be nostalgic to the point where problems pile up and the family’s wealth gets jeopardized.
You can read more about how rich parents teach their kids to be rich here.  Do you have any other suggestions? Let us know below.

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One of the Munchkins from Wizard of Oz asks if he can record a Death Certificate

Joint Tenancy: How to Record Death Certificate?

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Do you and your husband (or wife) own a house in joint tenancy and your spouse has passed away? How do you transfer title to just you? Most people will tell you just to record the death certificate. But is that the proper way? How do you record your spouse’s death certificate? Keep reading and find out . . .

Many married couples own their homes as “joint tenants” or “joint tenants with right of survivorship.” That means that if one owner dies, the surviving person is the sole owner. In order to transfer title to real property, you always need to record some sort of document with the County Recorder.

When one of the owners of jointly owned property dies, you need to record a death certificate. This shows that the one owner died. Years ago, you used to have to cross out the social security number on the death certificate. This prevented identity theft. But nowadays the County Recorder automatically makes death certificates private. You have to show that you’re a relative or attorney in order to get a copy of the death certificate.

A more proper way of transferring joint tenancy property is to record an Affidavit of Death. In this, you swear under oath that the one joint tenant has died. The Affidavit also sets out the facts and explains that you are now the sole owner. Even though this is not technically required in Arizona, it’s a good practice. Sometimes there are questions about title. If you have recorded an Affidavit of Death that actually states who owns the property, that can be helpful.

Here’s a sample Affidavit of Death. Even though this is a California form, it would work in Arizona. You will attach a copy of the death certificate to the form.

If you have any questions, feel free to contact us. This information is not legal advice. You should contact an attorney for your particular situation.


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What makes a Special Warranty Deed so special?

What’s a Special Warranty Deed?

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Title companies don’t want you knowing about this trick. For instance, Old Republic Title provides various sample documents on their website. But they don’t provide a Special Warranty Deed. There are different types of deeds: Quit Claim Deeds, General Warranty Deeds, Trustee Deeds. I could go on. Below I’ll explain why Special Warranty Deeds should be used more. So … what’s a Special Warranty Deed?

SHORT ANSWER: A special warranty deed is a transfer to real property and only warrants or guarantees the title against defects in clear title that may have arisen during the period of its tenure or ownership of the property.

TRANSLATION IN SIMPLE ENGLISH: A special warranty deed limits your liability for disputes over title to the real property. If an earlier owner messed things up by (for example) selling the same property to two different people, you aren’t responsible for that.

If you sign a deed to real property, how much liability do you want to assume? That’s the issue with different types of deeds. In order to qualify for title insurance, title companies require warranty deeds. But if you sign a “Warranty Deed” (also known simply as General Warranty Deed) you’re guaranteeing that there are no issues with ownership going all the way back to the beginning of time. Now no  one is going to sue you over something from 4.5 billion years ago when the earth was first formed. But whoever owned the property before you got involved might have done something. Maybe that prior owner promised the next door neighbor that he could drive over a corner of your property. Or the prior owner allowed the neighbor to run a water pipe under your property.

If you sign a (General) Warranty Deed, you agree to pay for any problems caused by that prior owner. That’s right. The current owner could sue you because the owner before you supposedly sold the property to two different people.

Here’s how you know the difference. A General Warranty Deed (aka simply a Warranty Deed) will say “The undersigned hereby warrants the title against all persons whomsoever, subject to the matters above set forth.”

A Special Warranty Deed, in contrast, will say “Notwithstanding any warranty that may otherwise be implied from the use of any word, phrase, or clause herein, Grantor(s) warrant title to the Property, subject to the matters referred to above, only against its own acts, but not the acts of any others.” Notice the underlined letters. That’s the difference.

I don’t know your specific situation, so I’m not giving you specific legal advice. But in most situations, a Special Warranty Deed is the way to go. If you have any questions, contact us. Looking forward to it.


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Young lady is holding an advertisement for a document preparation company

Document preparation company for a probate?

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Document preparers promise to do cheap divorces, bankruptcies … and probates. Is this a good idea? Should you use a document preparation company for a probate?

The short answer is NO (for most situations). I’ve been practicing law for 15 years now. I believe a document preparer could work if you have a very basic situation. Basic situations might be:

  • The deceased person left a valid will that an attorney prepared, and there is only one person in that will who is entitled to everything (and that same person is also named as the Personal Representative).
  • The person died without a will, and there is only one person entitled to everything. For example, the person died with no children and there is a surviving spouse.

Otherwise, I think it’s a recipe for mistakes and a family fight if you attempt to use a document preparation company. Here are some common disasters that can happen:

  1. The document preparer will suggest that everyone sign a Waiver of Bond. Bond is a form of insurance that protects against the Personal Representative stealing assets or mismanaging the estate. It’s surprisingly common for a Personal Rep to not act fairly. Bond protects the other family members from misbehavior by the Personal Representative.
  2. The document preparation company won’t check the Will for ambiguities or read the Will to see if what it says makes sense. If the estate gets distributed contrary to what the Will says, the Personal Rep could be on the hook personally for the mistake.
  3. Creditor claims can be complicated. For example, when should you deny a creditor claim?
  4. If you have a statement from a creditor (like a hospital or ambulance bill), and you send that company a Notice to Creditors, does the creditor need to send you another statement (like the Notice to Creditors says)? If you fail to deny a claim within a certain period of time, it is considered allowed and the estate need to pay it.
  5. The document preparation company won’t think through other issues. For example, how to transfer the property. A Will might way that Personal Representative should transfer the house to the deceased parent’s four kids. But that could turn into a fiasco if the kids can’t agree on what to do with the property. It would be better to have an attorney work with the family. The lawyer will fix such a situation before it turns into a problem.
  6. If a step mom or step dad is involved, you need a lawyer. There will almost certainly be conflict over division of the personal property. What if the step parent refuses to divide any of the deceased parent’s belongings with the children. It’s best to have a lawyer involved for such cases.

These are just some common situations that came to me when writing this. Just remember this: If the probate situation is really, really simple, a document preparer could handle it for you. But most cases these days are more complicated. Especially if you’re dealing with a blended family or multiple brothers or sisters.

If you have any questions, give us a call at 602-443-4888. We promise to talk straight with you. If you don’t need an attorney, we’ll let you know.


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Photo of various pleadings in a probate case gone bad. Someone should have hired a lawyer.

Do I Need a Lawyer for an Informal Probate?

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After a loved one dies, one of the tasks is administering your loved one’s estate. You want to make a smart decision and not give everything to lawyers or the government. I understand. But, here’s the thing. Sometimes you can do it just fine without a lawyer. But sometimes things go wrong. And it’s hard for you (as a non-attorney) to know ahead of time whether you need a lawyer. In asking “Do I need a lawyer for an informal probate?”, consider the case of the Estate of Rogers, which was decided in 2013.

The short version of that case is as follows:

On June 22, 2006, Marion Rogers (Decedent) passed away. He was survived by a husband, Dolores Rogers (Dolores), and three children: Nancy, Gary, and Candace. In September, 2007, Gary filed an application to appoint himself personal representative of the estate and to probate the estate through intestate proceedings. He did this without using a lawyer. Nancy, Candace and Dolores all waived their rights to apply as personal representative and consented to the appointment of Gary. On February 12, 2010 Gary filed a closing statement seeking to close the probate estate. Nancy then filed an Objection and requested a hearing. Nancy also filed a Petition for Removal and Surcharge of Gary as personal representative. A hearing was held in September 2011, and the probate court heard testimony from Nancy, Candace, Gary, and Nancy’s husband.

Note: What could have taken one year and not involved the courts has now blown up. Five years later after their loved one’s death, the family is fighting in court. The trial court eventually dismissed Nancy’s Petition for Removal and Surcharge of the personal representative. And that was eventually upheld by the appellate court. But that’s not the issue. This family spent lots of money on lawyers to fight over the administration of this estate. In hindsight, it would have been much better for them to spend $8,000 $10,000 to have a lawyer handle the estate administration for them. (And that’s probably a high estimate for a really simple probate.)

Moral of the story: Get a lawyer to help you.

At Magellan Law, we have perfected the administration of informal probates. We’ll make sure your loved one’s estate gets processed quickly, efficiently, and correctly … so you can sleep at night knowing that you won’t become like the story above and get served with a lawsuit 5 years after your loved one’s death.


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Trustee sister telling brother that she doesn't want to sell the house

Trustee Doesn’t Want to Sell the House

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We get this a lot: Mom or dad just died. House was in a trust. Now your brother or sister is in charge of the trust (as the trustee). The trustee doesn’t want to sell the house or distribute anything. What are you (the beneficiary) supposed to do? Here’s a checklist.

  1. Do you have a copy of the trust? (I’m not talking about a Certificate of Trust, or a deed to the house. I mean the actual 25 pages or more long trust document.) If you don’t have a copy of the trust, ask for one. If the trustee refuses to give you a copy of the trust, contact an attorney to figure out how to get a copy.
  2. Have a trust litigation attorney read the trust document and determine what is supposed to happen.
  3. Assuming the trust says the house gets sold and you are entitled to a share of trust property, how long has it been? What is in the house? If you have valuable antiques or artwork or collectibles, are those getting inventoried?  Is the house secured? A trust attorney can help you with these details and figure out what specifically needs to happen. In a very simple case, if there is nothing of value in the house, the contents can be quickly liquidated (or donated), the house cleaned up, and the house listed for sale within a month or two. Sometimes, however, it can take longer. It shouldn’t take 6 months in most cases to clean out a house and list it for sale. One year is too long (in most cases).
  4. Figure out if there’s a “No Contest Clause” in the trust. These can be danger, as discussed in a prior blog. You may need to take certain precautions before filing something with the court.
  5. Discuss the next steps with your lawyer. If there is a No Contest Clause, he or she might file a Petition for Declaratory Judgment to get the court to determine that you won’t be “contesting the trust” by seeking to get a new trustee. There are basically two options. First, you can try to get the court to order the trustee to do what is needed. However, sometimes it’s just quicker in the long run to get a more responsible person appointed as trustee. If you decide that’s the way to go, have your trust litigation lawyer prepare and file a Petition to Remove Trustee and Appoint Successor Trustee.

If the trustee is also living in the house, your lawyer will help you file an eviction (called an Unlawful Detainer). This takes longer than you might like. But generally, you can get the person removed within 45 to 60 days.

If you have any questions, call us for a free consultation. We’re here to help!

 

 


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Large black rock will fall on your hand if you try to get to the trust document. Declaratory judgment needed first.

If No Contest Clause, Use a Declaratory Judgment

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A No Contest Clause basically says “If anyone contests what I said in this document, they don’t get anything.” The problem with a No Contest Clause is that no one knows what a “contest” is. If the executor or trustee isn’t doing his or her job, and you file something with the court complaining about that, is that a “contest”? Well, it might be. Below is a short discussion on how to use a Petition for Declaratory Judgment to battle a No Contest Clause.

Allegations of trustee misconduct are too common from our experience. This even happens in the case of a celebrity, such as the allegations that Michael Crichton’s widow mishandled the trust. When should you use a Petition for Declaratory Judgment? Let’s say you’re dealing with Charlie Brown’s parents’ trust. It says that after Mr. and Mrs. Brown die, Charlie Brown’s younger sister, Sally, is to become the successor trustee. And let’s say that Sally is now the trustee. The trust contains a No Contest Clause. Sally is refusing to do certain things (like selling the house, providing an accounting, treating the beneficiaries equally). If Charlie goes to court and make all of these claims, and then asks that Sally be removed as trustee, Charlie could be violating the clause (because the trust named Sally to be trustee). However, Charlie could still do this and get away with it if he has “probable cause” to bring your petition. (And yes, “probable cause” is also a loosey goosey term.)

Confused yet? Read on and hopefully it will get clearer …

Charlie has two choices. First, he can roll the dice and hope he can prove his case. That’s not a good idea. Or, second, he can file a Petition for Declaratory Judgment.  Assuming you go the second route, you are not actually asking for the Court to remove Sally the trustee. You are simply asking the Court to determine whether Sally has breached her duties as trustee. Here the petition would say:

WHERFORE, Petitioner requests that the Court:

  1. Find that Sally Brown is unwilling to act as trustee of the Trust.
  2. Appoint Charlie Brown as successor trustee of the Trust only if the Court finds that Sally Brown is unwilling to serve as trustee.
  3. Order Sally Brown to deliver all accounts, books, and records of the Trust to Charlie Brown only if the Court finds that Sally Brown is unwilling to serve as trustee.
  4. Grant such other and further relief the Court deem just and appropriate under the circumstances.

A really conservative approach to a Declaratory Judgment action would be to do this in two completely separate stages. First, you would ask the court to rule that if you bring an action alleging the various misdeeds of the trustee, that you would not be violating the No Contest Clause. Only after you have the Court’s blessing with that first proceeding would you file a second petition requesting that the trustee be removed. That’s the way things are done in, for example, California.

The same principle applies in the context of a Will.

If a trustee or Personal Rep is not doing his/her job, and the relevant document has a No Contest Clause, you need to see a probate litigation attorney. Do not try to do this on your own! We’re here to help. Give us a call at 602-443-4888.


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Photo of a house that was cut in half in order to be moved.

Does a Beneficiary Deed Avoid Probate in Arizona?

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In Arizona, the owner of a house can deed that house to someone using a Beneficiary Deed. The good thing about it is that it’s revocable and it can avoid probate. The applicable statute is A.R.S. Section 13-405. Sounds pretty slick, right? So the question is … does a Beneficiary Deed avoid probate in Arizona?

There are three main problems that I see with using a Beneficiary Deed:

  1. If you name more than one beneficiary, those beneficiaries may not get along. They are taking title as tenants in common, meaning that they each own an undivided interest in the property. But what if one of the beneficiaries moves into the property and refuses to cooperate in selling it or letting the other beneficiary have use of the property. Also, do you really foresee your kids (or whoever the beneficiaries) living in that property like a big commune, along with their kids and grandkids and spouses and friends. I’ve actually seen that happen and it’s kind of crazy. Usually the only way to force all of the beneficiaries to agree to move out and sell the property is to file a legal action in civil court known as a Partition by Sale. This is sometimes called a “Forced Sale.” The rest of the beneficiaries will almost certainly be successful in forcing a sale.
  2. The other problem I sometimes see if naming only one family members as the beneficiary, and assuming that person will sell the house and divvy up the proceeds among the rest of the family. I’ve seen this happen more than once. The way it often happens is something like this: Mom owns the house. Mom signs a will naming son as Personal Representative (executor). The will states that everything gets divided among three kids. Mom then records a Beneficiary Deed giving the house to the son. Son decides to keep the house and tells his siblings “tough luck.” Son wins because the law is on his side.
  3. Some people get confused and think the Beneficiary Deed is the same as a will. They keep it safe with their important documents but never record it with the County Recorder. If the owner dies before the deed gets recorded, it is no good.

The actual way that a “forced sale” works is that the attorney prepares a Complaint for Partition. The applicable statute talks about getting three commissioners to work together and have the property surveyed. The statute was written with farm land or vacant land in mind. Obviously you can’t survey and divide a house (like the photo above). The statute is a little vague about alternatives, but it allows some wiggle room. I usually ask for a neutral third party (such as a licensed fiduciary) to be appointed. The court will order that the neutral party be appointed as a “commissioner” in order to list the house for sale and divide the proceeds. If someone is living in the house, the “commissioner” can start an eviction proceeding to remove the tenant.

Does this all sound pretty complicated? Yup. So the moral of the story is to use a Beneficiary Deed only if you are absolutely 100% sure that you want the property only going to a single beneficiary, and you name that single beneficiary on the deed. Otherwise, stay away from them. There are too many risks. Besides, there are plenty of better ways of handling an estate plan. Don’t be stingy. Hire a good lawyer (such as us) to help you. The money and time that you save your family in the long run will far outweigh the cost up front.

Have a question about this? Drop me an email at paul@magellanlawfirm.com or give us a shout at 602-443-4888.


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Photo of 6 year old Dachsund Winnie Pooh dreaming of money

When does it make sense to have a pet trust?

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According to DNAinfo.com, there is a court battle over a $100,000 pet trust created for a 6 year old Dachshund in her deceased owner’s Will. Supposedly, the owner, Patricia Bowers, passed away in 2010 (apparently when the pet was but a wee pup). The dachshund, named Winnie Pooh, was left to caretaker Virginia Hanlon. Ms. Hanlon filed court papers in Manhattan last week, alleging that the executor of Winnie Pooh’s deceased owners estate is improperly withholding funds from the doggie’s trust. The trustee has occasionally sent payments of $2.36 per quarter (apparently estimating the cost of caring for a pet to be $10 per year).  Last year when Winnie Pooh had a $6,000 surgery, the reimbursement check from the trustee bounced. So … when does it make sense to have a pet trust?

Many questions surface from this strange story.

  • Why would you name a dog after a cartoon bear?
  • What is the trustee doing with the money? If $100,000 is held in a pet trust, then there should be absolutely no reason that a check would bounce–unless the trustee is completely mishandling the money. If that’s the case, the trustee needs to get removed by the court and ordered to pay the caretaker’s legal fees and costs.
  • The caretaker says that it would take $5,000 per year to take care of Winnie Pooh. I understand when there is a $6,000 vet bill. But how often does that happen?
  • According to peteducation.com, the high end estimate of owning a dog for 14 years would be $39,000. What else was the caretaker planning to do for the dog? Go on trips to Europe?

Final Thoughts.

Looking at the big picture, whether Winnie Pooh gets $5,000 per year, or a little more or less, her story is actually kind of within reason. You recall Leona Helmsley leaving $12 million to her beloved maltese, Trouble, among many other pets. That is actually absurd. So is when Gunther IV inherited his $375 million fortune from his father, Gunther III, the beloved pet of Countess Karlotta Libenstein. (This was actually the first time I had heard of a pet dynasty. I guess it’s technically possible.)

To conclude, I’m in favor of leaving a reasonable amount of money in a pet trust. That’s only fair to the person to whom you leave your pet. However, if you want to leave millions of dollars to your pet(s), you might just do some more soul searching and see if perhaps your money could better help the world.


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US musician Prince performs during his concert at the Sziget Festival on the Shipyard Island, northern Budapest, Hungary, on Tuesday, Aug. 9, 2011.

Why Prince should have had a Will

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I’m disappointed with Prince. Here’s why. He was in a position of influence because of his popularity, but he left as a legacy a court battle over his estate. And worse than that, he left a trail of emotional trauma and possibly financial damage to his family. First, let me update you on where things stand regarding Prince’s estate. Then I’ll tell you why Prince should have had a Will.

Quick update: According to an article in Reuters, 29 people have had their claims denied in the Prince probate proceeding in Minnesota. These folks (I won’t call them vultures) included a professed secret wife who said the CIA had classified their marriage records as top secret. Among other would-be heirs denied by the court were five people who came forward claiming Prince was their biological or adoptive father. Several others claimed their dad was also Prince’s genetic parent by way of an extramarital affair with his mother. There is no final word on who the heirs will be, since some have to submit to genetic testing.

For all the taboos that Prince pushed against (sexuality in particular), he certainly avoided the taboo of talking about death. And I say this all as a fan. I’m originally from Minnesota. And I saw the movie Purple Rain in my hometown of Winona, Minnesota when it first came out. Also, I’m proud to say that my high school (Cotter High) recorded a jazz band album in the same recording studio where Prince recorded the day before in 1980. (I played alto sax.) We could still smell his cigarette smoke. That was a pretty cool experience.

So … here’s why I’m disappointed with him:

  • His family is having to fight each other (and a bunch of strangers) over who gets what.
  • The lawyers are having a field day raking in fees, which is what Prince would NOT have wanted since he was always so careful to manage his own affairs.
  • The people who are inheriting from his estate are getting a financial windfall. This is a recipe for disaster. Various articles on the internet claim that 70% of lottery winners end up in bankruptcy. I couldn’t find any actual research about this. But from my experience, I would not be surprised about this statistic.
  • He completely missed an opportunity to help causes that he cared about … perhaps teaching music to underprivileged kids.

Anyway, I would like some popular icons and leaders to actually do a good job of planning for their deaths and give us that kind of positive experience. But, then again, I guess that wouldn’t make it in the news because it would be handled quickly and privately.

If you have any questions about Wills or Trusts, give us a call. We regularly handle high net worth estates, including some famous people. We are discrete with our clients. Prince was not my client, otherwise (a) his estate wouldn’t be an issue like it is, and (b) I wouldn’t be bad-talking about him here (because of our obligation of confidentiality).


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An elderly person such as this is more susceptible to financial exploitation from inheritance impatience because she is loney, depressed, and lacks the ability to protect herself.

Inheritance Impatience

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Recently, I came across some news articles discussing the term “Inheritance Impatience.” I had never heard this term before. Inheritance Impatience is a form of financial exploitation of the elderly. An example would when when an adult child pressures mom or dad to get their inheritance now (rather than waiting for the parent to die). Sometimes the adult child actually helps speed up the parent’s death (by withholding food or medical care). Now that I have a label it, I realize that we actually see this sort of thing happening too often.

The problem is this: The parents are at such an age that their children start thinking about what they will inherit. In fact, sometimes they get so excited that they start making plans far ahead of actually receiving the money. And too often I witness kids who decide that they can take matters into their own hands. These cases can be from mild to extreme as you might imagine but more frightening are the more subtle ways of expediting the transition from this life. Family members have commenced upon their own selfish acts such as withholding food and medical care, or choosing a nursing home that is known to provide sub-par care with discounted rates.

How can you prevent this happening to your own parent?

  • Make sure your parents have a revocable trust that becomes irrevocable when one of them passes away or becomes incapacitated. That prevents the surviving spouse from being pressured into making changes by an unscrupulous family member or caretaker.
  • Make sure the trust has a strong Trust Protector who can quickly remove and replace a trustee in case an impatient family member gets appointed as trustee.
  • Name a neutral third party as trustee when the parent can no longer effectively protect himself or herself. (In Arizona we call these companies licensed fiduciaries.)
  • Make sure to visit your parents regularly, or have someone who you trust that would be able to check in on your parents’ well being. Don’t just rely on the one family member or caretaker who happens to live close to your parents.
  • Make sure that all adult children have copies of estate planning documents. If there is a pattern of sharing all estate planning documents, then it looks more like undue influence if a set of documents if kept a secret from the rest of the family. (And undue influence can be a way of getting a court to invalidate legal documents.)

Just by being aware of this issue, you can be on the lookout for signs of financial exploitation or “inheritance impatience.” If you believe a vulnerable adult is being financially exploited or physically abused, call Adult Protective Services. They will investigate and take action as appropriate.


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Widow sitting alone worried about not having Trust Protector

Every Trust Needs a Trust Protector

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I have come to the conclusion that every trust needs a Trust Protector. The reason is that you have no idea what will happen in the future. And once you are gone, there is at least a possibility that your family will fight over who gets what and how everything gets divided. It is also possible that other changes may need to be made. I discussed Trust Protectors previously here. But this is such an important topic that I wanted to share a story about why this is so important.

I recently got a phone call from a lady whose husband died a little over a year ago. They had created a joint revocable trust naming themselves as the trustees.  The value of their trust was around $3 million. They named their adult child (now disabled) as the successor trustee to take over if neither of them was able to be trustee any longer. So … when the husband died, the wife had a nervous break down. She could no longer manage her affairs. The next-in-line trustee was their child (who was also incapacitated). That meant that there was no one able to manage her finances.

Here’s what happens in a situation like this (and what happened to her). The County Attorney brought a Petition to appoint a private fiduciary company as her guardian (to make health care decisions for her). This company also became her trustee. There was litigation over whether she needed a trustee and guardian. Over the course of one and a half years, the lawyers ate up approximately $500,000!!!

Even if she is able to prove that she can now serve as trustee again, this is still set to be a problem in the future. Years from now when she is much older and perhaps develops dementia or is otherwise unable to manage her affairs, the government will again have to step in and name a new trustee. And the new trustee is almost certainly going to be a stranger!

This could have easily been avoided by naming a Trust Protector. And the future problem (which is almost certainly going to happen) could be avoided by asking the Court to amend the trust by adding Trust Protector language. Because this is so powerful, I encourage my clients to include very broad trust protector powers. (I am happy to send you my preferred trust language if you email me at paul@magellanlawfirm.com.)

You can read more about Trust Protectors in an article on Forbes.com from 2012. In the meanwhile, if you have any questions about trusts or Trust Protectors, give me a call. I’m passionate about helping families avoid (or solve) court battles and family feuds.


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Man and woman looking distraught

Naming a family member as trustee? Yikes!

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You go to an estate planning attorney to set up your will or trust. That attorney asks you who you want to be in charge of your affairs when you’re gone. You say you want your husband or wife or one of your kids to serve as trustee. Makes perfectly good sense of the time. And the attorney just want to get the answer so he can prepare documents and get paid. But it does it make sense to be naming a family member to serve as trustee?

At the time of writing this blog, our law firm is involved in representing a number of trustees who are accused of mismanaging trust property. We see how this can strain marriages, and cause irreparable harm to family relationships.

The fact of the matter is that most people don’t know how to handle their own money. Most people live paycheck to paycheck and and if they get control over any amount of money, they will figure out how to miss manage it.

You may think the world of your husband or wife or oldest child. But that doesn’t mean that person has a clue about all of the responsibilities required to administer a trust. The final tax return needs to get paid. The trustee needs to identify what property belongs to the trust, what property is payable outside the trust. What about personal property? How does it get distributed? Should the house get fixed up before getting sold or just get sold as is? Any wrong decision can result in personal liability for the trustee. In other words, you could be putting your loved one in a position of inadvertently making a mistake and having to pay the big bucks as a result.

To make matters worse, is there any possibility of family dissension? Is there any possibility that the other beneficiaries of the trust will be jealous of the person you choose to be trustee?

How about if the surviving spouse is either in control of the trust or has psychological influence over the person who serves as trustee? There’s a good chance that the surviving spouse Will try to figure a way out of paying any money to a stepchild or nonblood relative. I have seen this time and time again.

So what’s the solution? The answer really starts by either properly laying the groundwork so the family is all on board and there are sufficient checks and balances so whoever is managing the trust will be absolutely certain to do it properly. Or… You hire a neutral third-party to serve as trustee.

For wealthier families who have family offices, the family office can serve as trustee. But this requires that the entire estate plan is properly set up so that the surviving spouse or some other family member cannot somehow take over control of the family office. This requires checks and balances and proper organization.

What can you do to prevent a problem? If you have a trust, get a second opinion about whether it will actually work when you were gone. Here is a short checklist of things your trust absolutely, definitely needs to have:

1. Every trust needs to have a trust protector. Sometimes this person is called an independent trustee. The purpose is to have a neutral third-party who can remove and replace irresponsible or criminal trustees, and make other changes as necessary to the trust so that your wishes are carried out.

2. Require regular accountings. At a very minimum, this needs to be annually. Waving the requirement of an accounting is essentially a license to steal without any way for someone to find out before it’s too late.

3. Make sure multiple family members have copies of all of your trust documents. Otherwise, the person in control of the trust document may not be happy with it and could destroy it without anyone ever finding out.

If you have any questions about hooter name as trustee or how to prevent family squabbles when you’re gone, contact us.


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Photo of the musician Prince on a purple motorcycle

Bequeathing Trouble: Prince’s Estate Plan

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Prince’s death came as an enormous shock to the world. And the $150 million in estate taxes that his family will end up paying will come as a shock to them. It turns out that Prince’s estate plan was to not have a plan.

The untimely death of the enigmatic music icon left two things:

  1. Millions of grieving fans
  2. A vault of unreleased recordings

But just what’s going to happen to those recordings—a collection reportedly large enough to release new music for the next 50 years—and the 57-year-old pop star’s $300 million in assets, is still very unclear.

Why?—because Prince died without setting up an estate.

The absence of an estate plan is surprising for an artist known for his meticulous attention to detail, but in reality it is an all too common occurrence for the wealthy.

  • “It’s too expensive”
  • “It’s too much trouble”
  • “I’m not planning to die”

These are ALL lines I’ve heard over the course of my career, and they’re all equally frustrating to hear. I really shake my head at the “It’s too expensive” excuse. Consider Prince’s example. If his estate is worth $300 million, as reported by CNBC, then his family will pay half of that in taxes. Compared to $150 million, spending $50,000 in estate planning sounds pretty cheap to me.

You see, whether Prince wasn’t ready to think about his own mortality, or he simply forgot to form an estate doesn’t matter. What DOES matter is that his heirs are now going to be mired in paperwork with government.

By failing to form an estate plan (or even a will), Prince died intestate, which means no instructions were left. No instructions mean the government has to fill in the blanks. A court will appoint an executor for the estate, and after debts, taxes, and probate costs, will divide what’s left according to the laws of intestate succession.

Prince completely surrendered his right to control what happens to his worldly possessions—music, money, property, clothing, jewelry, etc.—by not taking the time to form an estate plan.

Worse still, he’s pass along the financial, emotional, and legal burden of settling the estate to his family.

In my experience, when a high-value individual dies intestate, lengthy in-family legal battles over rights, custody, or the valuation of assets, are not far off.

In the case of Prince, the deceased artist’s sister and half-brother have very different ideas about what should happen to his unreleased recordings, and those different ideas will—at some point—lead to a legal confrontation.

Prince’s legacy—his legend, his unpublished songs, his wealth, his property, his famous outfits, everything—will be controlled by people he has never even sat down and had a conversation with.

The executors of Prince’s estate literally don’t know him any better than you or I do—we can only hope they’ll make decisions he would approve of.


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