There are old pilots and bold pilots. But, there are few old, bold pilots. The idea of finding fault with any particular profession, let alone the legal profession, may put my plane in the ground just for daring to be bold. I hope not. This article is written with hope, that things get better. I really care, and that is why I am going to tell on some advisors who should know better.
I can’t just say I am dismayed with a few lawyers. It doesn’t stop there. Some CPA’s, registered reps, RIA’s, insurance agents, bankers and Certified Financial Planners — are also in my sights this time. This blog entry may indeed “Roll Over Beethoven” and ”Tell Tchaikovsky the news” as the song lyrics go.
Enjoy the song as you read!!!
You see, in 1998, I entered a new emerging consulting arena for “Inherited IRA’s” that didn’t exist prior to that time. Fewer people had large IRA accounts since the “norm” before was that most employees had company sponsored pension plans with survivor benefits. Yes, people did have IRA’s since 1974, but contribution limits were extremely small and so were the accounts for the most part. But, the extreme success that individual 401-k plans had with employers and employees alike, fueled a huge increase of money piling into the stock market. Mandatory withdrawal tax law for those reaching 70 1/2 in age were put into effect in the 1980’s and have only been suspended once by Congress in tax year 2009. These “RMD’s” allow accounts to grow even when mandatory payments commence.
In case you didn’t realize it, the stock market is much like a fire in your fireplace. Supply and demand is what I am talking about. With unrestricted airflow and plenty of wood, a fire will blaze. So it goes with the stock market. When people are piling in “new” money in equity type investments, there is a natural tendency to see a nice “lift’ in the long term charts. Some investors become “fat cats”, but most forget the fire eventually will die down again.
And when that same money pulls back or is taken out of the equity markets, the opposite is true of course. Sadly, many get in too late, just as the fire peaks and then starts to die down. Then, they often get scared and pull out before more money (new wood) is again put back into the market. Timing is everything, especially now.
The Inherited IRA consulting I have done for for thirteen years has made me kind of an expert on the subject. My website, www.InheritedIRAHell.com is very popular in search engines. This is because my firm gives away timely and important information with no obligation.
Thousands come each year to read the Inherited IRA web content, which is always kept up to date with law changes. Many contact me each month and some hire me to assist them in trying to stay out of this “Inherited IRA Hell” the site is named after.
And, that isn’t an easy task even with my help and expertise on board. Sometimes (actually most of the time), I still have to deal with less than spectacular advisors on the other end. Though lawyers, CPA’s, investment advisors and insurance agents now come to my site to resource and learn the basics of Inherited IRA advisory, (as well as many executors, trustees and heirs), the norm in America is still at or near “incompetency” on all fronts. When it comes to getting solid Inherited IRA facts that you can take to the bank, the old carpenters’ tip “measure twice and saw once” was never more true.
The problem isn’t that most of these advisors are a quart low in brains. Not at all. Some very intelligent advisors and clients of mine over the years have proven it all comes down to desire. The desire to learn and the ability to understand the more complicated tax and legal issues surrounding inherited type funds to most people is like watching paint dry. Popular IRA advisor Ed Slott, CPA has penned it this way — “the most difficult area of the tax code”. He is right! That is why even the lawyers and accountants shy away from this field of practice.
Some heirs and advisors have the ability to resource on my site and other great sources available to them. They can make good decisions because they can grasp the concepts, rules, and instructions necessary to keep the funds from immediately becoming taxed. (That is the hell we reference on the site) But, most financial advisors consistently get a low score and most heirs need professional guidance and help. THE BIGGEST PROBLEM IS THAT THE HEIRS LOOK TO THE ADVISORS OF THE DECEASED LOVED ONE – AND THEY AREN’T QUALIFIED!
My team of advisors is ready for any case, big or small, in trust, or out. And the circumstances never duplicate in an estate IRA situation case. Therefore, all known factors must be reviewed so that good decisions can be made by the surviving parties that contact me. (Usually the estate manager or administrator) Yet, after all these years, I find the education in this area of practice is not a whole lot better than when just a few of us pioneered the area of practice from scratch, way back in 1998.
Ed Slott, CPA does a fantastic job of writing books, giving free tweets, providing online resource, as well as sponsoring seminars and training classes for professional financial advisors. He is an expert IRA advisor! But, he can’t reach everyone. In fact, he can only put a dent in the problem that attorney Natalie Choate in New York (she is our master Inherited IRA expert in the country hands down), has stated is an emerging area for malpractice for lawyers to look into.
One problem though on that. Many of the estate plans I have a chance to peruse after the death, show gross negligence, high malpractice and most commonly – failure to understand why leaving IRA money to the client’s living trust is in many cases, a bad idea. Sadly, some estate advisors are just plain stupid, like Jethro! I guess Ms. Choate desires the good lawyers sue the bad lawyers in IRA cases so she won’t have to work so hard. After writing and updating the Bible on IRA’s, we count on her expertise in paperback form, on EVERY case we review.
What I am saying is that Natalie is right about the malpractice she notes in her book, because I see it too. Every week on every case I work on, something is messed up. Someone who couldn’t spell the words – “Estate Planner” is to blame.
After death, post mortem advisory looks a lot different when the rose colored glasses come off. After the death, seldom does the plan for Inherited IRA funds work out like it was planned prior to the death. Gross negligence, gross malpractice, fraud, coercion, tax mistakes, cover ups – all are common on the files I have worked on over the years. And, it seems like it is getting worse, not better. Estate planners with 1/2 brains would correctly describe my current files on my desk!
Let me prove my point by discussing in general, a few examples from actual clients, giving permission to publish details without of course, revealing personal information:
A. AMERICA’S WORST LAWYER?
The Personal Representative & Successor Trustee, our client’s sister, and her chosen Estate & Trust Attorney & Trust Administrator and Estate/Trust CPA (BFF of Estate/Trust Attorney who also made the referral) refused to provide direct notice, refused to provide direct communication, refused to disclose estate and trust assets, and refused inspection of all trust properties, trusts books of records, and trust accounts.
This was contrary to the Trust agreement and statutes but was done because they did not want my client to know what was there. It was necessary for her to hire a very expensive southern lawyer, just to try to obtain communication with the sister in charge and her chosen estate lawyer. His best work for the most part, was in printing his billings…
But, the estate lawyer the sister hired has been found to be, more or less, A LAWYER FROM HELL! (Referred to as L.F.H. hereafter) She first assisted my client’s mother in updating her living trust early in the year of death. At that time, no one knew that a medical condition would take her life late that same year. Sadly, the original professional trust prepared by a name brand law firm in the Midwest was replaced. The trustmaker got a thin, poorly written 10 page “jobbie” instead. Of course, it claimed the trustmaker was now a resident of the southern state where she lived part of the year in her boyfriend’s condo.
The client’s mother resided the rest of the time in her boyfriend’s Midwest home, the same Midwest town where instructions were left for burial. The client’s mother did own a rental condo property titled to her trust in the southern state. That didn’t stop the L.F.H. from listing the property as a probate asset on the Probate Inventory filed in the court of this southern state!
The female CPA who had been doing the income taxes prior to the death was also using the free state tax approach for the client and a drivers license was also issued there, giving reasonable proof the trustmaker had the outer appearance as a real resident, at least for IRS purposes. Perhaps the southern state was her resident state irrespective of the fact the IRS is fully aware of winter visitors doing the exact same thing to avoid state tax on some or all of their retirement income. (And the home state tax agencies as well) The problem the client and I discovered after the death was that the consecutive months rule wasn’t really met for residency testing per the state statutes. Oh well, no one’s perfect.
But, the test for her residence state in the Midwest was also ignored for probate reasons, irrespective that most of the decedent’s large money accounts were opened there and the statements went to the Midwest home address, not the southern state residence that was being claimed by the CPA for IRS tax purposes.
Our examination as an estate accounting/tax preparation and Inherited IRA tax consulting firm found the amended trust drafted by the L.F.H. was clueless on how to draft proper estate legal documents. Since our firm is certified by the Supreme Court of Arizona to prepare estate legal documents, with 36 years of estate legal document work either on our own, or by working with estate planning legal firms – we can tell a “stinker” from afar.
We also found out the L.F.H. was clueless on why trust funding is necessary BEFORE death. Proper funding was ignored by all estate and tax advisors prior to death as well as the sister in charge. This, even though three months prior to death, written statements by physicians declared the mother (now a patient) incapacitated mentally and physically. The sister had full powers as GPOA and Successor Trustee, but chose to ignore the need to fully fund the living trust, prior to death.
The L.F.H. stated, word for word: ” FINALLY, (CLIENT) ASKED A QUESTION IN A RECENT FAX TO ME WHICH I AM ANSWERING FOR THE BENEFIT OF ALL OF YOU HERE. IT IS NOT MY PRACTICE, NOR COMMON PRACTICE HERE, TO PREPARE A “DECLARATION OF TRUST OWNERSHIP OF PERSONAL ARTICLES” OR ANY OTHER SIMILAR DOCUMENT WHICH WOULD TRANSFER PERSONAL PROPERTY TO THE TRUST, AND IT WAS NOT DONE IN THIS CASE.”
It is a nice admission of malpractice since professional estate planners in this southern state commonly use such assignments on a regular basis. This caused probate on assets that helped run up her fees no doubt! We documented our file with numerous lawyer websites in the same state, describing the assignment of tangible items to the trust as common practice in trust estate planning. (Common nationwide as well)
Worst of all, this L.F.H. was not able to properly list the actual sibling beneficiary sisters as the trust beneficiaries. Instead, the trust beneficiaries were identified only by state default statutes to identify just who gets the money. Especially when you have almost a million dollar IRA, separate from other large estate assets and investment accounts, that is high malpractice! It cost a lot of money to perfect what was penned by me initially as the “world’s worst trust” I had ever read. Not a legal opinion of course. But a fact! There was also no Inherited IRA management legal language, no conduit trust provision, nothing at all to make her trust eligible for such a big IRA payoff upon death.
The southern lawyer my client was forced to hire in order to communicate, came on board even though he had zero knowledge with large trust owned IRA accounts and eventually admitted it. He was mostly a grapevine between the parties, whose connections discovered after his dismissal now bring up questions of conflict about disclosure items that should have been told up front to my client.
Also, legal and tax help was brought in by me to work for the client to perfect complications of the mother having a bad IRA custodian that did not allow splitting IRA shares inside a trust which was then changed to another bad custodian by the sister for one reason. The investment advisors in charge that got the large IRA account were down south! And friends or fellow yacht club members with the L.F.H. and her CPA associate! The other sibling sisters benefited from this work my client had to pay for, basically getting a free ride for this advisory work we all did for our client, the only sister caring to do things in a professional manner.
This female L.F.H. with direct connections to all the other “players” in the southern estate game that was played out (and is still going on as I write this), charged like a Manhattan lawyer while producing results similar to letting Hannibal Lecture give you a haircut! She sent my client a hokey looking copy of her employment agreement with the sister in charge, a whited out IRA beneficiary form copy that looked like more redacted than a pilot’s UFO sighting report – all adding up to imperfect production of documents. Only a few of requested documents ever came in.
Which brings up the question my client and I can not dismiss:
Was it all intentional, just to milk the estate for all the fee money the lawyer from Hell and her associated southern advisors could get?
We have come to a definitive conclusion that she is not the sharpest knife in the drawer of lawyers. But, perhaps she is intelligent in knowing how to make a trust fail so that a large amount of non–trust assets were forced into probate. But, then, she listed trust assets in the initial probate inventory which only a fool would do. Or, someone milking the estate for all the pesos possible. (This southern state has a liberal policy on how a lawyer can grab a percentage of trust assets, much more liberal than my home state of Arizona)
This L.F.H. does just one thing very well. Billing. Well, maybe that should be changed to “charging” since my client has never seen an actual billing from her, even though 1/3 of the payments came from her inheritance money. The truth is, flat fees were agreed upon up front, (the factor % included trust assets needing little work) then “extra-ordinary” fees were of course also manufactured by the lawyers on this estate, and by the sister in charge, claiming in mediation the detailed extra-ordinary billings existed but now claiming they don’t. Can you spell highway robbery?
Total legal and accounting fees to date on this estate paid out by all parties to date exceeds $300,000! Most of that money went down the toilet directly because the L.F.H. drafted imperfect legal documents and ignored proper trust funding. This in turn, caused probate, delays, fights, and mistakes in rapid fire. Though I too participated in the fees paid out, my work helped perfect an imperfect Inherited IRA account. It was necessary. Most of the fees were not. Truly, some of the advisors of this estate have taken their own “share” as if they were listed heirs. That is shameful, since now, they refuse to provide billings to justify the large extra-ordinary fees taken against the estate (and my client’s share). It also is against the law.
Today,the sister is still too busy to do any substantive work on her own (she claims it is short term memory loss). I wonder if she tells the adults she cares for as a doctor she can’t remember anything? The allowed fee for her full PR and Successor Trustee services weren’t discounted again in the “extra-ordinary” free for all payments that were paid out after mediation completed. This, even though a whole team of lawyers had been on staff at times doing most of the work. (in the most sloppy, careless way possible) The fact that the CPA recently granted the PR/Successor Trustee carte blanche on when she claims her second half of the pre-agreed fiduciary income payment is laughable if the IRS finds out. Especially since it was deducted on the 706 two years before! Broken statues and laws have run off these people’s back like water to date.
Between the estate lawyer and CPA handiwork, multiple amended inventories of probate assets were filed again and again and again with the Southern state’s Court and copied to the Southern State’s Department of Revenue (they still have a tax department for Corporate and Estates), because the L.F.H. listed Trust asset(s) as Probate assets on Inventories and failed to list all probate assets. To this day, even though Probate has been “closed” via ex parte communications in a Probate Judge’s Chambers attesting under oath that estate was fully administered), the estate remains not fully administered. The 2011 plan is to hold remaining estate money in accounts that pay no interest so they don’t have to file form 1041 another year. I guess any bank account can pretty well guarantee that. But, it isn’t professional, nor is it the manner in which a professional Trustee would (or could) act, since it violates the trust. The trust also remains violated because the terms dictated “distribute” upon the mother’s death. Year four is coming up next week in violation of that trust term…
The IRS Form 706 Death Tax Return, also showed a goof of over $70,000 in death taxes overpaid! Even today, the inventory is flawed, the “corrected” death certificate is flawed, and the list of mistakes fills a couple pages. The estate is now sealed with the IRS on the 706 and the southern state county probate proceedings. Sealed unless someone wants to go back and lift the rock up that is still hiding the mistakes and misdeeds that this lawyer helped the PR and Successor Trustee perpetrate against my client.
Which brings up the second situation that has fueled the fire on this case. Simply stated, it is JEALOUSY & REVENGE. “We Are Going To Get You!” was spoken from the sister in control of the purse strings — to my client, as the mother lay dying in her hospital room.
Jurisdiction was declared down south for the revised trust, GPOA, and Last Will. That begat the introduction to the bank sponsored securities brokers who took delivery of a majority of the estate money which was “ordered” south as well, from it’s Midwestern roots. The sister allowed migration of jurisdictional control and estate money, even though she was and remains a resident Successor Trustee back in the Midwest.
We also had stale IRA — RMD withdrawals, claiming life insurance proceeds with an imperfect death certificate, failure to manage the IRA properly, failure to protect the securities accounts from large losses, and improper taking of bank deposit box contents owned by my client, improper art valuations and accounting. All this mal–performance and malfeasance adds up to a nightmare estate situation caused on the most part, by bad advisors and a sister who doesn’t really seem to care how much money the bad advisors cost or how many mistakes are being made. The high priced souther state CPA started this mess by referring the deceased mother and her estate administrators to just about everybody who is an advisor and also “friend” on her Facebook account page!
The death took place almost 3 years ago, yet today the estate is still not fully settled! Money is still being held hostage because my client won’t sign a forgiveness waiver that I quote, “Covers from the beginning of time to the current time”. Of course, everybody but the Butler is included in the waiver parties now wanting exemption from liability before the final cash payment can be made to my client from the estate.
The once large estate has dwindled down because of market risk (crash of 2008), and very expensive advisory fees (still with no billings being provided to my client for ordinary or extra-ordinary fees charged against her share). Then, you have two investment advisors on the money pulled down to the southern state — both who I found just sitting on their thumbs with the sister in charge, until we had to intervene and cry foul over a year ago. (They had made no trades from inception) By that time, additional stock market losses took even more money away from the estate beneficiaries.
Add in a whopping payment to the IRS for the estate tax due because no one advised doing annual “gifting”. Even higher Form 1041 Estate/Trust federal taxes resulted simply because the CPA and lawyer failed to coordinate DNI in the same tax year on the fiduciary return, as the year of death. That kissed 20k away alone.
But, we still aren’t done! The expensive legal battles over the large IRA cost plenty, but above all, market loss cost the most because the sister never understood her right to go to cash to protect the estate from market loss was part of her job, not to maintain her deceased mother’s investment positions for months (or years) after her death.The wasted money, energy and time to get the IRA issues straightened out was huge by all parties involved.
Even to this day, the sister serving as Successor Trustee and her lawyer doesn’t seem to understand the money manager (RIA) is not the custodian of the former failed IRA account. Or that the terms of the mediation agreement my client was forced to sign under duress have not been complied with. At least one brokerage account that was supposed to have been zeroed out and closed still had money in it 8 months after the agreement was signed! Inventories and bookkeeping entries to date, remain incorrect and inaccurate.
Lastly, my observation on this case was that the estate became a “feeding trough” for the southern advisors hired by the sister in charge, far from the clients regular home. One thing is certain — the revengeful sister in charge has the mental capacity to do better than she has. She is rated “brilliant” in IQ tests. (the whole family were/are lawyers or doctors with high IQ’s) But, as a busy medical doctor she has trusted an incompetent southern lawyer and CPA to advice and do most of the work instead. Bad work. The fiduciary duty of PR & Successor Trustee (sister), Estate CPA, Investment Advisors and Estate lawyer, as well as my client’s former southern lawyer, has all but been forsaken in this case. Only the sister, doesn’t reside in this little STEPFORD community with their tight little group most likely looking and hoping for another large estate to feed off when they get done on this one!
Thanks to Facebook and online searches, we now know just how well connected everyone is with each other in this case. Since there is no statute of limitations for fraud, the revengeful sister with America’s worst attorney (the Lawyer from Hell/L.F.H.) at her side, doing her bidding – may yet find out that using an estate to get even, is not smart. Not smart at all…
B. DUMB INSURANCE COMPANY: “We will make an exception in your case”.
This case was settled recently. The CPA client was chief financial officer for a company and was not up on the current laws and rules regarding her mother’s inherited IRA account left to her and her four siblings. Initially, our firm was hired to help review paperwork sent to her by the insurance company.
Upon examination, it was obvious the insurance company serving as custodian of the decedent’s IRA account had sent out paperwork to my client and her siblings that would immediately tax the proceeds once the death benefit was paid out! But, it was too late for three of the siblings. They had already signed and executed the paperwork sent which meant they now get the privilege of instant taxation in tax year (2011). Perhaps if they had compared and seen the projections of how long a stretch IRA will provide income to them and their heirs, they would have made different choices. The problem was, the insurance company initially didn’t offer anything but a lump sum settlement, making if 100% taxable in the year taken.
Our firm was able to save the client and one remaining sister sibling from instant taxation by requesting alternate paperwork that set up an inherited IRA account for the benefit of the daughter (our client). Some work was necessary because the initial response was “we don’t do that here”. This was quite shocking since I am a licensed agent of this insurance company, one of the best rated and lowest cost term insurance providers in the nation! But, they are not high on the list of qualified IRA custodians. Only New York life gets mentioned by Inherited IRA expert, Natalie Choate, as a valid carrier to handle your loved ones IRA.
I found it embarrassing as a licensed agent to have to fight the company in order to obtain an exception for her. When the letter from their top legal staff stated “we will make an exception in your case”, our green light was on for executing the alternate paperwork I ordered for her (her sister I think will duplicate what we did) and it was sent in. It also included copies of paperwork “porting” the funds away from this insurance company to what Natalie Choate refers to as a “more sophisticated custodian”.
The final result is the funds were never first placed into an insurance company product as an inherited IRA account. But, were transferred by direct rollover to a brokerage firm known as the best qualified to manage an inherited type account. We could not stop the insurance company paying the death claim on the IRA, from the moves they made. Even still, the new custodian felt everything was in order, but it left that small element of doubt for both me and the client, who as a CPA, knows the truth will be revealed when the 1099-R is issued next January.
Because of that, I had her request and she received confirmation from legal staff of this insurance company, re-assurance that the original “taxable” reporting from the first set of paperwork would be replaced in their systems with a “tax free” direct rollover coding on the 1099-R. Yet, fingers are crossed since the incompetence of the claims staff was ever present while dealing with them.
Legal recourse would be available if a taxable reporting took place on this case, because solid letters in writing were obtained by the firm on “status” prior to the transfer out and away from them ever took place. (In the Inherited IRA advisory field, this is called the “handshake”) If you would like to know the name of this company, just call me at 1-800-782-2806 and I will tell you.
This blog entry will be continued as “Roll over Beethoven – Pt. 2” in the near future. Some recent cases will provide more titillating stories of tax and legal malpractice. They are being published here hoping people “test” their advisors BEFORE they die with 3 million dollar estates (give or take a million describes many of my cases) to see if they really are qualified as experts.
I think my practice of Inherited IRA consulting and assisting as accountant, and constant settlement of estates in and out of trust will keep ol’ Ludwig spinning for quite some time into the future. Bad advisors, creating bad plans and bad faith, creating broken promises while purporting to be experts is the reason.
I find it really sad, the clients can’t find out while still alive, the truth about those who practice below the belt as advisors. If you don’t know, just say so! Instead, they let their client die, and then expect the heirs to still want to do business with them, even after they discover all the mistakes they made. By then, it is often too late to fend off all of the damage they caused. If your current IRA financial advisor can’t readily tell you what the words – RMD* stand for, RUN!!!!!
* RMD is the common term for “Required Minimum Distributions” that must start for any inherited or beneficiary IRA, no later than the end of the year following the year of death.
I tell clients I meet for the first time, they will never know just how good I am when they die with my Arizona professional Trust Estate Plan. But, their heirs have found out my best work is performed after losing a client. SEE MY TESTIMONIALS.
My company record for Arizona trust estate clients to date, as far as I know, is no probates, lawsuits, or prolonged squabbles resulted by using my professional legal documents! After about seventy five trust estate settlements for Arizona clients, my record allows me to print this “money where my mouth is” blog entry, hoping other advisors get a little more educated about estate planning and inherited IRA’s BEFORE they perform services for their clients. I won’t be holding my breath…
M.D. Anderson, President
Financial Strategies, Inc.
Toll free: 1-800-782-2806