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Duties of a Guardianship with Mental Health Powers

Photo of scrabble letters spelling "Mental Health"

If your loved one needs to be committed for inpatient mental health treatment in a locked facility, then you are looking at what’s called a “Guardian with Mental Health Powers”. This is a complicated process, and I strongly encourage you to get the help of an attorney. You will need to prove that your loved one is incapacitated as a result of a mental disorder and is likely to be in need of inpatient mental health care and treatment within the next 12 months. See A.R.S. Section 14-5312.01. This authority would allow the guardian to place the person to a “level one behavioral health facility” (aka, a locked mental health facility).

If the subject of mental health is new to you, please read up on it. It isn’t always easy to tell if someone has a mental health issue, or a physical one. (Here is an article about that subject.)  In this country, we joke about people being “crazy” and are baffled by the number of homeless people. In truth, many people with mental illness want help. It isn’t fun to be seriously depressed or confused or addicted. And sometimes a family member or friend needs to step up to the plate and go to court to get permission to provide the help that is needed. This also isn’t fun. First, you will need to get a health care professional’s report stating the need for a guardianship with mental health powers. Then you will involve going to court. If you are the one trying to get appointed as guardian, a court investigator will call you or meet with you to make sure you are a responsible person. There will be a court appointed attorney whose job it is to protect his client (your loved one) and push back on your efforts. This is all part of the process. The purpose is to make it difficult to take someone’s legal rights away.

If you are appointed as a guardian with mental health powers, you are required to report annually, in writing, with respect to your ward’s residence, physical and mental health, whether there still is a need for a guardian, and your ward’s financial situation. Your report is due each year on the anniversary date of the Letters of Appointment.
You must be conscious at all times of the needs and best interests of your ward. If the circumstances that made a guardianship necessary should end, you are responsible for petitioning to terminate the guardianship and obtaining your discharge as guardian. Even if the guardianship should terminate by operation of law, you will not be discharged from your responsibilities until you have obtained an order from this Court discharging you.

If you have any questions, call us at 602-443-4888.

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How to Create a Family Dynasty

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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Trump cannot avoid conflict with “Blind Trust”

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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Will my kids be able to enjoy the same lifestyle?

“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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Parenting: Raising children to be motivated

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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Joint Tenancy: How to Record Death Certificate?

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’s a Special Warranty Deed?

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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Do I Need a Lawyer for an Informal Probate?

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 Doesn’t Want to Sell the House

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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If No Contest Clause, Use a Declaratory Judgment

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.