Law News and Tips

A Sea Change

Fred Vilbig - Monday, July 13, 2015

I feel compelled to write an article about the Supreme Court’s recent decision on same-sex “marriage”,

Obergefell v. Hodges.

It is not because I believe the decision was wrong for moral reasons. The Court has made and will continue to make bad decisions. See, Dred Scott v. Sandford.

It is not because the opinion (which I’ve admittedly only read once very quickly) reads more like a college sociology paper than a legal opinion. Legal opinions start by analyzing prior law and reach a conclusion. College sociology papers start with a stated position, and then seek to justify it. The Supreme Court’s opinion reads a lot like the latter.

Rather, I feel compelled to write about the decision’s basic holding and the threat it poses to many Catholics and other Christians. What the Court holds is that people of the same sex have a “constitutional right” to marry. The reverse of this statement is that it is unconstitutional to deny a person the right to marry someone of the same sex. This a sea change.

Hate Speech

When something is held to be unconstitutional, there are consequences. Unconstitutional actions can result in fines, loss of government benefits or privileges, or even imprisonment. For instance, statements against a person’s “constitutional rights” can be treated as “hate speech.”

One of the symbols used to promote what is called “marriage equality” (a masterful misnomer) is an equal sign (“=”). If a person wants to exercise their right to free speech, an unequal sign (“≠”) on a bumper sticker could be considered hate speech. Arguably, the owner of the car could be prosecuted.

To some, this may seem far-fetched, but consider the case of Aaron and Melissa Klein, the Oregon bakery owners who were fined $135,000 for refusing to bake a “wedding” cake for a gay couple. That seems pretty extreme for someone just trying to live out their faith. And I don’t think that will be the last of these types of attacks.

Tax Exemption

Although the case is not currently in the courts to my knowledge, I think it is not too hard to imagine a lawsuit challenging the tax exemption of the Catholic Church (or any other faithful Christian denomination or congregation) for its refusal to conduct same-sex “marriages.” In 1983, Bob Jones University lost its tax-exempt status due to a policy prohibiting interracial marriage. I am not in any way condoning that policy, but the reasoning of the IRS should concern us. The IRS argued that the privilege of a tax exemption should not be extended to an organization violating the constitutional rights of a group of people. I could easily see this principle being used against the Catholic Church (and others) to end its tax exemption, the value of which substantially benefits the poor.

In order to avoid this dilemma, there has been some discussion among the US Catholic bishops regarding some changes in how Catholics would get married. The Church would follow the Mexican model. In Mexico the state issues a marriage license while the Church simply blesses the marriage. This may only be a technical change (you get your marriage license before you go to church), but it would be significant.

A Carrot

In fairness it should be noted that Justice Kennedy included in the majority opinion a statement that the First Amendment will protect “religious organizations and persons” if they teach that same-sex “marriages” are contrary to God’s will. However, in oral argument when Justice Alito asked whether a ruling in favor of the plaintiffs in the case would pose a threat to the exempt status of religious schools and universities opposed to same-sex marriage, the Solicitor General of the United States ominously said that is “certainly going to be an issue.”

Justice Kennedy’s paragraph, although nicely worded, is really pretty meaningless. It has nothing to do with the facts that were before the Court. This is what is referred to as “dicta,” which is just a judge talking. It is not controlling at all. It is just Justice Kennedy’s random thoughts.

The Future

It seems to me that what the Court has done is it has set up an unavoidable conflict between First Amendment Rights and these newly minted “rights.” So I see fertile ground for lawyers on both sides of the issue. This will be great for legal business, but not necessarily a good use of resources. However, given the way the Court decided the case, I don’t see how this is avoidable.

But then, to quote Winston Churchill, “Democracy is the worst form of government, except for all the others.” Let the fighting begin!

10 Reasons 4 a Will

Fred Vilbig - Monday, July 13, 2015

I usually try to convince people that they need to consider a trust. With a trust, you can avoid probate which saves time and money and also maintains your privacy.

However, there are a lot of times where people can’t justify a trust. In those circumstances, at least having a will is important. Here are 10 reasons to at least have a will:

  1. With the will you could provide for the orderly distribution of your estate to your loved ones.
  2. With a will, you can avoid ruining your young children’s lives by giving them large sums of money when they aren’t able to handle it.
  3. With a will, you can avoid unnecessary costs, such as fiduciary bonding.
  4. With a will, you can avoid unnecessary court hearings by giving a power of sale.
  5. With a will, you can simplify probate by permitting independent administration.
  6. With a will, you can avoid court appointed guardians by naming your own guardians for your minor children.
  7. With a will, you can name the person you want to handle things for you when you’re gone (your personal representative).
  8. With a will, you can set up trusts for your children to protect the assets.
  9. With a will, you can provide for the payment of your funeral and final medical expenses.
  10. With a will, you can reduce the risk of lawsuits.

 

So even though a will might not be the optimum way to plan your estate, it is much better than having no estate plan, or just doing pay on death/transfer on death beneficiary designations. Where there is a will, there is a way.

Charles Dickens and Joint Assets

Fred Vilbig - Sunday, June 14, 2015

In his novel Bleak House, Charles Dickens wrote about how people let their lives be ruled by a case in probate court. As with all of Dickens’ novels, there is an extensive list of characters. In, Bleak House, these characters live their lives based on the anticipated outcome of the case. At the risk of ruining the book for you, I will say that the end result was not good, except maybe for the lawyers.

When I was young and naïve, I thought probate was established to protect the widows and orphans from the predatory creditors. However, the practice of law has disabused me of that silly notion. Probate is there to make sure your bills get paid. You can’t escape paying your bills just by dying.

It’s not all gloom and doom, though. Not all of your assets will be subject to probate. Jointly held assets can escape probate. Bank accounts with a “pay-on-death” clause can escape probate. Cars, boats, trailers, and other registered assets that have “transfer-on-death” beneficiary designations can escape probate. Real estate can escape probate with a beneficiary deed. And life insurance and retirement accounts can escape probate by proper beneficiary designations. These are all referred to as “non-probate” transfers”.

The success of these strategies, however, doesn’t depend on whether you do everything right and setting them up. You can dot all of the i’s and cross all of the t’s, but still have problems.

We don’t know what tomorrow will bring, much less what will happen 10 or 20 years from now. Your joint owner might be fine today, but what happens if he or she has a stroke or dies. When those things happen, people often forget to change their plans. We seem to think that once we’ve done something, it’s done. Out of sight, out of mind.

With joint ownership, on the death of joint owner, the joint property automatically belongs to the surviving joint owner. But if the other joint owner has a stroke or grows old and incompetent, the joint property is frozen, unless you open a custodianship for them in probate court.

Joint ownership also raises issues when there is a remarriage. If the newlyweds put their property in joint names, on the death of the first of them to die, the decedent’s children typically get left in the cold. The surviving spouses, children get a windfall.

Even during the joint owners’ lives, there can be problems. In the case of a joint bank account, the joint assets can be taken in bankruptcy or for the collection of a debt of one of the joint owners. In the case of joint assets other than bank accounts, both joint owners have to agree to do anything with those assets. In effect, the assets are frozen.

In the case of a pay-on-death account or a transfer-on-death asset, you can name alternative beneficiaries, but most people don’t. If you just list your children as beneficiaries, on the death of one of the named beneficiaries, the other surviving named beneficiaries typically get the account or property.

The law does allow you to write creative beneficiary designations that can take future events into account, but this can be problematic. I do this kind of thing every day, but normal people don’t. It’s hard to think through all of the possibilities.

In addition, there are the bank rules. Banks don’t want you to be too creative because it can get them into trouble. They typically only allow clear, straightforward, limited beneficiary designations on accounts. This doesn’t allow for much planning.

These kinds of non-probate transfers can work in limited circumstances. However, it is my experience that those situations are few and far between. The best way to address the uncertainties of life in your estate plan is either through a will (although this guarantees probate) or through a trust.

Clients who try to do all of this by themselves typically end up like the characters in Bleak House. And it doesn’t end well.

A Little Independence History

Fred Vilbig - Sunday, June 14, 2015

If you think about it, life in the American colonies in the 1700s, was not that bad. For comparison, read almost any novel by Charles Dickens about what life was like in London. Life in the colonies wasn’t necessarily easy, but there was plenty of land and work for the industrious.

In addition, taxes were actually lower in the colonies than they were in England. However, administering the colonies was expensive, so Parliament wanted to raise taxes to cover those costs. No one really talked to the colonists about this since the colonists did not have a representative in Parliament. And that was the rub. “No taxation without representation” was the colonial clarion call.

The British in 1767 passed the “Townshend Acts” to tax tea, glass, paint, and other things. To enforce it, they sent troops. A snowball incident in Boston led to the Boston massacre in 1770.

In May 1773, Britain passed the “Tea Act” again to raise revenue. The colonists objected, and the Boston Tea Party ensued in December.

King George had had enough. In 1774, the royal governor of Virginia dissolved their colonial legislature, the House of Burgesses, and Parliament terminated, Massachusetts’ right to self-government. In reaction, the colonists to disrupted all court proceedings held by the British government in Massachusetts.

The colonists began to arm themselves and stockpile ammunition. Understandably, the King objected. He sent troops to raid the storehouses at Concord, but on the way, there was the brief skirmish at Lexington. This was an instance where the British won the battle, but lost the war. On the march back to Boston, the colonists hid in the trees and shot at the British soldiers marching wide open on the road.

And then the colonists under George Washington drove the British from Boston. The British then fled to Nova Scotia.

With all of this in the background, the Continental Congress was meeting in Philadelphia starting in 1774. It is important to note that this “Congress” was completely illegal and officially unauthorized by the British government. Everyone there was a rebel and a traitor liable to be hung. But they were sent there by the legislatures of the colonies who were generally elected by the citizens. So they were unofficially official, although traitors.

In June 1776, five men were appointed to write a declaration of independence: Thomas Jefferson, John Adams, Ben Franklin, Roger Sherman, and Robert Livingston. The committee assigned Jefferson the task of writing the first draft. It’s important to know how to delegate.

The Declaration of Independence was not necessarily an original document. Jefferson apparently borrowed heavily from George Mason’s draft of the, Virginia Declaration of Rights. However, Jefferson could turn a phrase. But he was sort of a prima donna. He was upset by many of the changes that were forced upon them by the committee and by the Congress.

The Continental Congress voted for independence on July 2, 1776. The Declaration of Independence was approved by 12 of the 13 colonies (New York did not approve for several days) on July 4 and was sent off to the printer. It wasn’t signed by all the delegates until August 2. But that’s how government works.

Things did not go so well for the 56 signers of the Declaration. Five were captured and tortured to death by the British. Nine died in battles or due to the hardships of war. The homes of 12 were ransacked and burned. Although before they signed the Declaration, all of them had been prosperous, prominent citizens, many died impoverished. And their wives and children suffered greatly as well.

The colonists could have lived fairly well under British control, but they found their lack of political power to be intolerable. They were subject to the whims of a distant, but powerful government that could oppress them at any time.

Although independence meant hardship, and for some death, it was a price they thought was worth paying. To quote from the last line of the Declaration, the signers “mutually pledge[d] to each other our Lives, our Fortunes, and our sacred Honor” for the support of the Declaration. As mentioned, most of them paid that pledge. We should keep this in mind as we celebrate. Happy Fourth of July!

Title Insurance: A Primer (#2)

Fred Vilbig - Friday, June 12, 2015

In my first Title Insurance Primer article, I talked about how to delete what are called “survey exceptions” off of your title insurance policy. However, there are other standard exceptions to coverage in your title insurance. The purpose of this article #2 is to talk about those other standard exceptions and what you can do about them. In the third and last installment of this Title Insurance Primer that I will write, I will discuss the “special” exceptions that can be found in Schedule B of an ALTA policy.

One of the other standard title insurance exceptions that every ALTA title policy has is the exception for the rights of parties in possession. These would be tenants or squatters. If the property is owner-occupied, this shouldn’t be a problem. But if you are buying the property out of a foreclosure, then squatters in particular can be an issue.

To delete this exception, you need the ALTA survey (the surveyor will note whether he (or she) saw any evidence of people living on the property) and an affidavit from the owner. If you are buying the property out of foreclosure, the title company might give you some push back since the owner will probably be an absentee bank that doesn’t monitor the property, but you should insist on the deletion with the survey.

Another standard exception is for unrecorded liens. When work is done on property or materials delivered for construction, the “mechanic” (the one doing the work) or the “materialman” (the one delivering the material) don’t have to file a lien immediately. They have about 6 months before they have to file a lien. So you could buy the property and 5 ½ months later have a lien slapped on your property. That would be bad. The title company will delete this exception with an affidavit from the owner saying that they have not had any unpaid for work done on or material delivered to the property.

The last of the pre-printed exceptions is for unpaid taxes and special assessments. Once again, the title company will need an affidavit from the owner to delete that exception. In this affidavit, the owner will state that they have paid all of their taxes with respect to the property and that they haven’t received any notice of any special assessments.

The deletion of these standard exceptions is something that homeowners often neglect in regard to their title insurance policies. However, if they stay in your policy, your title insurance may not be as much protection as you may need.

In the next and last installment of this Title Insurance Primer, I will talk about what are called “special exceptions” from your title insurance policy.

TITLE INSURANCE: A Primer (#1)

Fred Vilbig - Thursday, May 21, 2015

With the residential real estate market beginning to heat up – well, maybe at least there seems to be a pulse – I think it’s important to give some thought to title insurance.

Whenever you buy a house (or any property), the bank is going to require you to buy title insurance. But why?

It’s not hard to imagine that there are crooks out there. People will try to sell you things they don’t own or that are not in the condition they represent to you. (You’ve heard the jokes about someone wanting to sell you the Brooklyn Bridge.) They may even be well-intentioned, but just misinformed. (Think of the stereotype of the used car salesman.)

What title insurance does is it gives you some assurance that the person selling you the property actually owns it and has the power to sell it to you. However, with a standard title insurance policy, you need to pay attention to what it doesn’t cover. You’ll find what the policy doesn’t cover in the Schedule B exceptions.

This is the first of three articles I am going to write regarding title insurance. In this first article, I am going to talk about the survey related exceptions from coverage. In the next article, I am going to talk about the other standard exceptions from coverage. In the third article, I am going to talk about what are called the special exceptions from coverage.

The Standard Exceptions are pre-printed on the standard ALTA title policy that just about every title company uses. ALTA is the American Land Title Association. One of the biggest exceptions is for encroachments, boundary issues, and other matters a accurate survey would disclose. Maybe the neighbor built his or her fence or driveway on the property. That would be a problem.

Another standard exception is for unrecorded easements. For instance, there might be a pathway across the back of the property that the owner agreed to but never publicly recorded.

Both of these exceptions can be deleted off a policy (unless there really is a problem) by getting a survey. But the kind of survey you’ll need is not just what we call a “drive-by” survey. A drive-by survey is where the surveyor just looks at the recorded plat of the subdivision in the County Recorder’s office and literally drives by the property just to make sure it is there.

In order to have the survey exceptions deleted off your policy, you need to get a “stake-in-the-ground” survey. A stake-in-the-ground survey is where the surveyor actually sends out people who “shoot your lines”. Today this is done with lasers, but it still requires someone to actually be on the property. And they literally put markers of some sort in the ground. When I did this in college we put wooden stakes in the ground with colored flags on them. I don’t know if they still do that or not.

In addition to having someone actually go on the property, the survey also has to satisfy certain title insurance requirements and be certified to the title company. This is sometimes referred to as an ALTA survey. ALTA sets these kinds of standards.

By obtaining an ALTA survey you can have the title company remove the survey exceptions from your title policy. In the next article I am going to talk about the other standard title insurance exceptions, so stay tuned.

YOURS, MINE, AND OURS: Divorce and Remarriage

Fred Vilbig - Wednesday, May 20, 2015

In the days of “Leave It to Beaver”, Ward and June married, had kids, raised them, and grew old together. I think that may be more the exception than the rule these days.

Today, I run into Ward and June less and less. Deaths and divorce make life difficult, and remarriages can make life complicated. It would be nice if everyone just got along, but I’m sad to say that that is the exception rather than the rule. The emotional and financial aspects of blended families can be very complicated. Divorced individuals and remarried couples need to give some careful thought to their situations for estate planning purposes.

Divorcees are often happy to hear that for inheritance purposes, their ex-spouse will be treated as having predeceased them. No further comment on that.

However, that is not the end of it. If the couple during their marriage had kids, on the death of the first ex-spouse to die, the kids will have to go to the surviving ex-spouse unless he or she has renounced his or her parental rights. But the remaining question is who gets the kids on the death of the second ex-spouse to die. I don’t think that you would want to leave that decision to chance or to a judge.

If you did estate planning during your marriage, you will want to check to see who will manage things on your death. In most relationships, one spouse is usually the one who calls the shots. He or she may have persuaded the other spouse who should be named as the personal representative of your estate or the trustee of the trust for your kids. However, after the divorce, you probably don’t want your ex-brother-in-law anywhere near your estate or your kids.

And then there is remarriage. Ideally there would be a prenuptial agreement, especially when there are kids by prior marriages. But let’s be real. Who wants to through the chilling waters of a pre-nup on a budding romance? It just doesn’t happen no matter what your advisors might tell you.

I had a 75 year old client whose husband died. She had a sizeable estate. Knowing her as I did, I told her that if she met someone, she needed to get a prenuptial agreement before tying the knot. She called me a month or so later to tell me that she had married a guy she had met at a trailer park. Some people just don’t listen.

But why a pre-nup, you might ask? I get calls from prior clients who are thinking about remarriage. They tell me that although they love their intended and want to take care of him or her, they also are concerned about how to protect their kids’ inheritance. They don’t necessarily want their hard-earned money to go to their intended’s kids. That might change over time, but that is generally not the case in the beginning.

If a pre-nup is off the table, then a client can create a trust before marriage for his or her pre-marriage assets. All of the planning can be included in that document. So long as you don’t put post-marriage assets in the pre-marriage trust, the new spouse will only have such rights in those assets that you may give him or her. If you put post-marriage assets in that trust, then things can get complicated.

Upon divorce or remarriage, clients need to pay attention to their estate plans. Who gets the kids? Who handles wrapping things up? Who handles the money after you’re gone or even when you become disabled? And what happens to your estate if you remarry?

Careful planning with an attorney is important in order to avoid emotional and financial train wrecks. Don’t put it off.

Henry’s Legacy

Fred Vilbig - Tuesday, May 05, 2015

One of the things I enjoy about my job is learning about people’s lives. As my wife says, everyone has a story. The problem is that not everyone has someone to tell their stories to. Henry was one of those people.

Henry was born and raised on a farm in Florissant, Missouri. Although he was raised near two of the biggest rivers in America, he never learned to swim. When World War II broke out, he was drafted early on, into the Navy, of course. Sink or swim! And he swam.

Henry was assigned to the admiral’s battleship in the Pacific. He had a good voice, so he became the radio operator. The radio room was near the bottom of the ship. Even during the roughest storms, he just rocked gently back and forth.

The captain heard his voice and decided he needed to be on the bridge piping orders to the crew. When an officer told him to report to the bridge, Henry explained that he liked his job. Evidently that isn’t relevant in the Navy.

The first thing Henry noticed on the bridge was that his chair had a seat-belt. When he asked what that was for, the officer said with an evil grin, “Oh, you’ll find out.” Henry found out. In bad storms that gentle rocking in the radio room became the worst roller coaster ride you could imagine on the bridge. That seat-belt came in very handy.

On a Navy ship, the bridge gives you a view of a lot of what happens on the deck. Henry watched incredible scenes of bravery from the sailors during battles. He saw men coming onto the ship from transports fall from their rope ladders and get eaten by sharks. And he saw the cursing kamikaze pilots after their wing controls had been shot out as they flew past the ship only to crash into the ocean. He was usually the last person any of them ever saw. Henry had incredible stories to tell.

But Henry didn’t have any children to tell the stories two. When he got back to the states after the war, he married, but he and his wife couldn’t have children. So he ended up telling the stories to me.

But more than that, Henry left a legacy in another way. As they were nearing the end of their lives, he and his wife decided to give their estate to a university to set up an endowed scholarship. I had the privilege to help them plan their estate and worked with the successor trustee to fund the scholarship on the death of the second of them to die.

As my wife says, everyone has a story. The problem is that upon our deaths, our stories can go silent. One way to continue the story is through an endowment to a charity. It’s just something to think about.

Long Distance Family

Fred Vilbig - Sunday, April 26, 2015

I got a call from a woman. She lived out-of-state and had found me on the internet. She had just heard that her father had died. He had lived in St. Louis. He had told her recently that he was going to name her as his personal representative in his estate. She thought he owned a house and had some bank accounts. She hired us to probate his will.

Once we got hired, we started doing some investigating. We found nothing, literally. We called the banks our client had told us about, and they told us that there were not any accounts that needed to be probated. We then checked the real estate records and found that his house had gone to some woman we had not heard about. When we asked the client who she was, she told us it was her father’s “caregiver” at the time of his death. I started to smell a rat.

It turns out that the dad had an extended family. He had been married several times and had had children by several women, some of whom he had not married. He had grown distant from most of the kids, but he had at least stayed in touch with our client, mainly through her efforts.

When the father grew older, he had become bed-ridden. With his kids and his ex-wives out of the picture, he had turned to caregivers. Since he didn’t have much money, we assume that he offered to pay them from his estate. We found a series of beneficiary deeds naming a succession of people to get his house on his death. We assumed that these were the people he had hired as caregivers over time. The house ended up going to the last in this series. We assume that she got the bank accounts too. We know that she got the life insurance that was supposed to pay for his funeral. It was only after a fight that she agreed to use it to pay for the cheapest funeral possible.

The sad thing about this story is how the father ended up dying. He was admitted to a hospital for infections he had contracted from bed sores he got from laying in his bed for days without being moved. An untreated infection is a very painful way to die.

My client wanted to go after this “caregiver.” The problem was that this would be an expensive and uncertain case. We don’t know what kind of an agreement she had made with the father or if he had just given her his assets as a gift. I told the client that without more information (which no one seemed to have), there would at best be a 50/50 chance of success.

In the end, the caregiver made off with the estate of a man who died a painful death from lack of care. It’s sad and ironic at the same time. Keep up with your parents. It’s the right thing to do.

Giving Your Cake and Eating It Too

Fred Vilbig - Saturday, April 25, 2015

I was approached by a client several years ago about a piece of real estate he owned out in the country. A neighbor of his had approached him about selling it, but he had a problem. The land had been gifted down to him through the several generations of his family. As a result of this, if he sold the land, he would have had a big capital gains tax. The property wasn’t generating any income, so he liked the idea of selling it, but he didn’t want to lose a fourth of it in taxes.

I asked him if he had any charities he favored. He said that he did, and he had remembered one of them in his trust. That was perfect.

I talked to him about a lifetime charitable remainder trust. So long as he didn’t already have a binding contract to sell the land, he could transfer the property to a trust and get a tax deduction (he could even be his own trustee), sell the property out of the trust without incurring any immediate capital gains taxes, invest 100% of the sales proceeds, and earn a “unitrust amount” (a percentage of the trust principal’s fair market value) for the rest of his life and the life of his wife. On death, the remainder would pass to his charity.

He thought about it for a little while and asked a bunch of questions. In a way, it sounded too good to be true. In the end though, he created the trust, sold the property, and started receiving income he hadn’t been expecting. In this day and age, a little extra income can go a long way.

He also became a hero at his church. They were going to receive a substantial gift at some point in the future, and they were grateful.

The client got to give away his cake and have it too. This was a win, win, lose result. The client won; the church won; and the IRS lost which is always a good thing.