Whether it was Perry Mason, LA LAW, or an actual relationship with an attorney, most of us have stereotypes of attorneys. Not only attorneys in general, but the way you think of an F. Lee Baily or Johnny Cochran type litigator is probably not the same way you feel about a Tax Attorney. When you mention Tax Attorneys they are often lumped in with bean counting CPAs . . . probably not the first professional you’d choose to be with for sparkling conversation if you were snowed in together on a ski vacation.
Likewise, Trusts and Estates lawyers sometimes seem overly formal, proper, distant, self-important, and EXPENSIVE. There are plenty of exceptions to that conception but the purpose of today’s blog is to make sure you don’t have too much fun at your lawyer’s expense. The expense you suffer could be your own!
I don’t want to ever be accused of gratuitous profanity in this blog, but here goes: Quicken Family Lawyer! Legal Zoom Dot Com! I could go on but not without being excessively crass. I refer to these companies generically as IFCs (internet form sales companies)
We received a call this week requesting our assistance to bail out a perfectly good short sale that needed to close by the end of the year. The 2013 deadline was two-fold: (1) preserving the exemption from taxability of forgiven debt for the seller; and (2) using a $10,000 governmental closing incentive for the buyer that expires 12-31-13. The title company working on the closing reported at the 11th hour that title to the Seller’s property was still recorded in the names of both husband and wife. Husband had signed his listing and sales agreement and hoped to sign all closing documents as Trustee of the Revocable Living Trust (RLT) for he and his wife. But title was not yet transferred to the RLT! Based upon immutable guidelines from the out of state home office of the title company/settlement agent, the closing clerk deemed the wife to be lacking in mental capacity to sign the deed as a result of advancing Alzheimers. Looking further down the procedure manual, the Seller was required to hire an attorney and have a judge appoint a guardian or committee to sign the deed for the wife. This judicial procedure would require well into 2014! The delay therefore might cost the buyers $10,000 in incentives and the sellers many thousands in taxes. Title companies are justifiably paranoid of mental capacity issues. As we all live longer, title claim and losses resulting from dementia and Alzheimers have skyrocketed in recent years.
What Happened? How did the seller’s attempt at otherwise noble and valuable estate planning go so far awry?
The Sellers sought to save $1,000 or at most $2,000 in legal fees for estate planning and used the “form in a box” approach to drafting their own wills and trusts. No attorney preparing these documents would leave out also drafting certain powers of attorney as well as a deed from the couple into their own trust. But we have been able to find neither of these documents. If those two documents were recommended in the “IFC” that these sellers paid for, the self-representing homeowners clearly missed the nuance. This is one of the sadder illustrations of the old adage: “The one who represents himself has a fool for a client”.
Whenever our firm prepares trust documents for estate planning clients we emphasize and re-emphasize the importance of properly “funding” the trust. Without Funding – i.e., putting titles to houses, cars, etc., into the trust, the money you pay for the trust – whether to attorneys or to an “IFC” – is totally wasted! Truly, the use of an IFC by these sellers will now most likely cost them many thousands of dollars in unnecessary tax if Congress does not renew the Bush Tax Cuts in 2014. The buyers will lose a $10,000 incentive and may sue the sellers and all the professionals in the transaction. The realtors’ and lender’s commissions are in serious jeopardy and the title agency/settlement agent will probably implement a policy in 2014 to order title exams earlier in the closing process to avoid the uncompensated expense of preparing for a closing that will require more time to than just a few days to get ready.