Originally Aired: November 2, 2011
Topic: Estate Planning Tips with Author and Attorney Herbert Nass
The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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- Introduction of ‘Estate Planner for the Stars,’ Herb Nass
- Most People Die Without an Effective Estate Plan
- Court Has Last Word on Guardianship of Minors
- Keep Your Will Up to Date, Especially if You’re Divorcing
- Wills Should Be Fluid, Evolving as You Go Through Life
- Choice of Executor Is Crucial; Don’t Pick an Even Number of Them
- Executor’s Job Is Difficult and Should Be Adequately Paid
- Leona Helmsley Aside, Your Estate Can Provide for Your Pets
- Will Should Explain Your Thinking Regarding Each Child
- Failing to Properly Draft, Execute Stretch IRA Is Huge Mistake
- Dividing ‘Stuff’ Can Be the Most Contentious Issue Among Heirs
- Trust or Will? You Need to Have Both to Avoid Probate
Welcome to The Lange Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.
1. Introduction of ‘Estate Planner for the Stars,’ Herb Nass
Hana Haatainen Caye: Hello, and welcome to The Lange Money Hour, Where Smart Money Talks. I’m your host, Hana Haatainen Caye, and of course, I’m here with Jim Lange, CPA/attorney and best-selling author of the first and second edition of “Retire Secure!” and now his new book, “The Roth Revolution: Pay Taxes Once and Never Again.” Our guest tonight is Herb Nass, esquire. Herb is the author of “101 Biggest Estate Planning Mistakes and is the estate planner for some of today’s most famous celebrities. He has appeared on “The Oprah Winfrey Show,” “Larry King Live,” “Entertainment Tonight,” “Inside Edition,” “The Early Show” and “The O’Reilly Factor,” as well as Court TV, CNN FN and Fox News. In addition, he is active on the national speaking circuit. Herb is a media favorite, and we’re looking forward to having such a great guest on the show. He uses real-life stories of celebrity estate planning faux pas to communicate an important message in an entertaining way. Thank you for joining us tonight, Herb.
Herb Nass: My pleasure. Thank you for having me.
Jim Lange: And Herb, I just wanted to add that I really enjoyed your book. It was a very nice combination of entertainment and important education, which is hopefully what we will do tonight.
Herb Nass: Well, thank you. You know, even Donald Trump liked it, so you know, it’s a good book. I think all of your listeners would enjoy it, as well.
Jim Lange: Well, I think so, and it’s interesting because like you, I also had a, let’s call it, celebrity endorsement. Larry King actually wrote the foreword to my book, but Charles Schwab gave it a testimonial that was meaningful, and in your case, you got a testimonial from Sidney Kess, who I know as one of the top estate and tax experts, and I remember sitting through some very technical Sidney Kess workshops myself. So, to get an endorsement from Sidney Kess is saying something. So, that means that there is meat behind…
Herb Nass: And Bill Sable, my personal favorite. He’s another top attorney here in New York and a very smart guy, so I feel like maybe I wrote something pretty good there.
Jim Lange: Well, I think you did. So, you say that the single biggest mistake is not planning to fail for the one certainty in life, which is death.
Herb Nass: That’s it.
Jim Lange: And in the end, those who fail to plan, plan to fail.
Herb Nass: Yes.
Jim Lange: Could you please maybe shed a little …
2. Most People Die Without an Effective Estate Plan
Herb Nass: That most people die without a valid estate plan in place.
Jim Lange: That’s almost incredible, isn’t it?
Herb Nass: For people with substantial assets, that can be very costly, and it’s, you know, penny wise and pound foolish not to spend the money to get it done right.
Jim Lange: And so when you say get it done right, I assume that you’re talking about thinking things out, going to an appropriate estate attorney and also having your will updated every … I don’t know how often…
Herb Nass: That’s right. It’s very important to keep it current. A lot can change in someone’s life in a relatively short time. You know, the people who were perfect guardians for your kids might be going through a nasty divorce. So, you got to keep an eye on that and make sure it’s up to date.
Jim Lange: Yeah, by the way, that is one of my big ones, is to really think out that clause about guardianship for minor children, and I know in my own will, for example, now this might sound a little old-fashioned, but I kind of like the idea of a mother and father in the house. So we basically have couple Number 1 as opposed to, you know, one person, and if couple Number 1 is not a couple, then it goes to couple Number 2.
Herb Nass: Yeah, that’s a good thought. You know, it’s good to have mother and father around, but obviously, often if the family member is no longer acting, then you also could shift. So, you don’t necessarily want your sister’s husband to be the guardian. If your sister’s not around, then you go to option two.
Jim Lange: Right.
Herb Nass: That ties in with what you were suggesting. If they’re not a couple through divorce or death, then move to option two, but the good news, Jim, is that this happens very rarely to people. It’s very unusual, although it is tragic when it happens, that the kids are orphaned and lose both parents before 18, but it happens. So it’s important to plan for that contingency.
3. Court Hast Last Word on Guardianship of Minors
Jim Lange: And one of my concerns is not only the possibility of that happening but the inability to come to an agreement on a guardian, which tends to be, at least in my experience, the toughest thing to compromise on.
Herb Nass: Ultimately, the court makes the decision, at least in New York and I imagine in Pennsylvania, too. The court can always do what’s in the best interest of a minor, and so when it comes to your choice of guardian in your will, that’s not as binding as choosing an executor or trustee, and a court can overrule your choice. But if both husband and wife are in agreement, it’s highly unlikely that the court would override what both parents would want.
Jim Lange: Well, going back to the people who died without a valid will, one of them, I guess, most noted celebrities and probably one of the richest that you mentioned in your book was Howard Hughes, and here’s a multibillionaire who…
Herb Nass: Well, I don’t know if he was a multi-back then.
Jim Lange: OK. Just a single billionaire?
Herb Nass: Yeah, I think I’m, you know, I’m not sure, but I think he died in the ’70s, so I don’t think they were multis yet, but I may be wrong about that.
Jim Lange: OK. Well, let’s say for, at the time…
Herb Nass: Right. He was one of the richest guys of his time, if not the richest.
Jim Lange: Right, and he had a proper charitable foundation, and…
Herb Nass: Well, he had the Howard Hughes Medical Institute, but he created a mess for himself. The guy was so eccentric that he did multiple wills that created a lot of confusion and none of them were probated. So his estate went to his laughing heirs, and he had, apparently, I think 20 or 22 cousins who inherited his estate.
Jim Lange: And what a tragedy because that money could’ve obviously been used for medical research, et cetera.
Herb Nass: Medical research, sure thing. So he really shot himself in the foot, that guy. I wish I knew him. I would’ve cornered him and had him do it right.
Jim Lange: Well, I know that you do do it right for a lot of celebrities. I guess they call you the estate planner for the stars.
Herb Nass: Well, there are a lot of fine lawyers out there who have a lot of important clients, and believe me, there’s plenty of important people out there. All of our clients are important. But it’s fun to work with the people who are leaders in their fields, and the rock star who I used to idolize, now I’m writing his will and the artist, I’m writing his will, and you know, it’s fun. It makes it interesting.
Jim Lange: Yeah, and it was interesting also reading your book because you have some of the same problems that I do, is that let’s say as a writer or a reporter of events, you want to be accurate and thorough, but then you also have the issue of confidentiality.
Herb Nass: For sure. I mean, you know, we talk about client matters, and we changed the names, and the few mistakes in the book that were our mistakes in our office, we changed the names to protect the stupid or the innocent.
Jim Lange: Yeah.
Herb Nass: That’s me. So we don’t make the same mistake twice.
Jim Lange: Well, I mean, I just got the feeling reading it that you’re not only a fine author, but you’re also a very thorough estate attorney, and I love some of the stories. You know, the one about Ted Ammon, I thought was…
4. Keep Your Will UP to Date, Especially if You’re Divorcing
Herb Nass: Well, that illustrates mistake Number 2, not keeping your will up to date, especially if you’re going through a divorce. So here was this guy worth a huge amount of money who was going though an ugly divorce. His wife, Generosa was her name, was named a co-executor of the will and basically inherited everything, either outright or in trust, mostly outright, I think, and he had a very big law firm representing him and nobody told him, Ted, you better change your will. And, you know, it’s an interesting issue between estate planners and matrimonial lawyers, but I don’t think matrimonial lawyers really advise their clients properly on that. I think a client often feels better changing his or her will at the onset of a divorce, and I don’t see any reason not to. There’s no statute that I’m aware of that says you can’t do it. So, that’s a whole other discussion though.
Jim Lange: Yeah, and the other thing about that one was that his, if I’ve got this right, his wife’s lover…
Herb Nass: His murderer ended up being his wife’s boyfriend.
Jim Lange: Right.
Herb Nass: The fact that Ted Ammon never changed his will might’ve encouraged this idiot to murder him. He was bludgeoned to death at his home in East Hampton. It was right after September 11th. It kind of got lost a little bit in all that, but it was pretty tragic, and I’d hate to think it’s because he didn’t update his will and his wife knew it that she killed him. So she inherited the bulk of his estate. She died herself a few years later from cancer, but some lawyer out there dropped the ball, or Ted Ammon dropped the ball. Ultimately, it’s the client’s responsibility to do it. The lawyer can only suggest it but can’t make the client do it if the client doesn’t do it. Hopefully, the lawyer put something in writing to recommend it.
Jim Lange: Yeah, and ultimately, I think that it is incumbent on somebody who is going through a divorce, who does not want to leave heir money to somebody who will soon be their ex-spouse to change wills.
Herb Nass: A lot of times, matrimonial lawyers advise them not to change their will, and I don’t really agree with that big issue. I know it makes the client feel better when they do that. It’s like the one thing they can do without going to court and arguing and spending money. They can change their will, and maybe that’ll save their lives. Who knows?
Jim Lange: Or, if nothing else, at least direct money to where they want it to go.
Herb Nass: That’s right. The charity of their choice.
Jim Lange: Charity, or even perhaps, more that maybe the children of either that marriage or a different marriage.
5. Wills Should Be Fluid, Evolving as you Go Through Life
Herb Nass: That’s right. So, you know, a will is a fluid document. It’s a document that should evolve as a person goes though life and, you know, you’ve got to attend to it because someday, you’re going to die. We’re all going to die, Jim. I’m sorry, but it’s the reality, and you know, if your paperwork, if you put it off and you die, it’s too late. So, you just got to deal with it right now, this week, you know, before Thanksgiving, before Christmas, but everyone should attend to this because the implications of not could be devastating to a family.
Jim Lange: The other thing that I liked, and you basically have a whole chapter devoted to it, was mistakes involving executors and trustees, and you know, I have a little bit of a bias against corporate fiduciaries, so Mellon Bank, I don’t get a lot of referrals from Mellon Bank or PNC, which are the larger banks in Pittsburgh.
Herb Nass: Certain cases, in my opinion, were inappropriate, but for most estates, family and/or an advisor are the best choice.
Jim Lange: And I tend to prefer family members, but maybe you could tell us some of the mistakes that you have seen regarding executors and trustees, including one person who you would think would be a little more up-to-date for that? And I’m referring to a former attorney general.
Herb Nass: Robert Kennedy.
Jim Lange: Right.
Herb Nass: Well, again, you know, a will is a fluid document and as things happen in life, you got to update your will accordingly, and strangely enough, Robert Kennedy never changed his will to remove his brother John. So that was five years. John, of course, was assassinated in 1963 and Robert in ’68, I believe. So, five years and he never changed his will. So, you know, the will was drafted properly and not that there was a backup, but you think you’d just want to address that. And strangely enough, John Kennedy never changed his will when he was elected president, so his will was out-of-date. They were both done in like 1953 or 1954 just because the mentality of that family, and most people, is I’m never going to die, and that’s why people often put off dealing with a will.
Jim Lange: Right.
6. Choice of Executior is Crucial; Don’t Pick an Even Number of Them
Herb Nass: Now John Junior, who I had the pleasure of meeting on a few occasions and was about my age and a very charming guy, he had a relatively up-to-date will. Clearly, he and his wife were not getting along too well because she was not named as an executor, and she did not get the bulk of the estate. I mean, I’m speculating somewhat here, but certainly the stories were out that they weren’t getting along well and ultimately, her family got a settlement from John Junior’s estate for the loss of not one but two daughters, and I think it was about $15 million, which, of course, it’s hard to put a price on anybody, but that’s what the Kennedy estate paid out, I believe. So the Kennedy family, you know, we could write a whole book about them and their trusts. You know, they worked very effectively with trusts over many generations, so that’s how it worked for them. But executor choice is critical and you need to understand that having an even number of executors, two executors, four executors, is not necessarily a good idea because if they disagree and it’s a split, then you have to go to court. So having one executor may be best, but I would rather have three than two. So that’s a mistake people can avoid, particularly on a larger estate, Jim.
Jim Lange: Well, I agree with that and I know in my practice that a lot of times, people want to name their children as co-executors. So you end up with, you know, whether it’s an even or an odd number of children…
Herb Nass: Yeah, well, an even number is a problem.
Jim Lange: Right.
Herb Nass: And in that situation, it’s common for them to disagree.
Jim Lange: And I would even say that more than one is not necessarily a good thing because, in reality, the job of being an executor is not really an honor, it’s a burden. So I sometimes kid clients and say name the child that you like the least, just because it’s not really a fun thing.
Herb Nass: Well, it’s a lot of work. It’s a full-time job and a lot of responsibility. It’s very demanding.
Jim Lange: Right, but I still tend to name family members as opposed to a corporate trustee…
Herb Nass: Well, corporate fiduciaries, I agree. I mean, that’s a whole other world. I mean, for a large estate with multi types of assets in different places and different states, you know, you may need that, but for most estates, you don’t, clearly.
Jim Lange: Yeah, and you know, of course, there are a lot of horror stories out there, and then, the other thing is I’m a little bit of a cheapskate, and I prefer either low or no fees.
Herb Nass: Well, you know, executors, because they do perform a service and a job, I think they should be compensated, and if it’s between siblings, maybe one waives it and maybe they don’t take compensation, but if it’s an independent person, it’s a big job and it’s very demanding and a lot of decisions need to be made and usually, most states set the compensation at a reasonable amount. So, you know, I think it’s perfectly reasonable.
Jim Lange: Well, yeah, and I would agree with you. Although I have seen plenty of siblings waive executor fees and trustee fees…
Herb Nass: And that’s probably appropriate, and the will can either direct that if, you know, you can direct that or just let them make that decision.
Jim Lange: Yeah, maybe you have a solution to a problem that I run into, and this problem is what to do with a spendthrift child. So here, let’s assume that there’s, for discussion’s sake, two or three children. Two of them are responsible. They’re mature. There’re no issues in particular, and then one of them is either a spendthrift or has a drug or alcohol problem, and while we don’t want to disinherit the child with a drug or alcohol problem, we don’t want to leave the money to them outright. We want to leave that money in a trust for that child, and one of the issues that I have is, and the biggest problem that I have in my practice in that situation is, who is going to be the trustee of that trust?
Herb Nass: Well, not the sibling. Usually the sibling is not a good choice.
Jim Lange: Yeah. See, that’s the problem because A) the sibling doesn’t want to do it, and B) it can have a substantial impact on the relationship between the children after death.
Herb Nass: Oh yeah. I know that from personal experience.
Jim Lange: Yeah, you know, I don’t know what a holiday meal would be like after a trustee just said, “No, you can’t have money for a Ferrari. You can have enough money for a Chevy.” And that might not go over well.
Herb Nass: Right. Well, that’s where you need an advisor, you know, somebody independent, and it’s worth paying for. I mean, it’s worth having somebody take care of your kid if they need somebody to take care of them.
Jim Lange: Yeah. Although, frankly, I will admit that in more cases than not that I’ve been involved with, we usually end up with the sibling anyway. You might disagree with that one, which is fine, but I’ll just say that at least most of my clients, when they’ve…
Herb Nass: At the end of the day, I think they go there, but it’s a burden and it doesn’t help their relationship, and I know it from personal experience.
Jim Lange: And one of the reasons that it might be is because our office has made a decision that we don’t want to act as trustees or executors, and I think in some cases, you guys do. Is that right?
Herb Nass: Oh, I often do.
Jim Lange: You do.
Herb Nass: I like the role a lot. I really know what needs to be done and I can make decisions quickly and sell assets at the best possible price. So yeah, I’m not hesitant to do that. I have a small law firm so I’m the boss, so it’s all on me. I’m happy to do it if it makes sense for everybody.
Jim Lange: And you are experienced and you are set up and you’re doing a lot of them. We’ve done about 1,600 estate plans, and I guess if I wanted to, I could’ve gone in that direction, but I just decided I’m either going to do a lot or none, and I just decided to do none.
7. Executor’s Job Is Difficult and Should Be Adequately Paid
Herb Nass: Well, you can do both. You can do the documents, and then when clients don’t have somebody else, they often will ask me, either as a backup or as a co- and obviously, we have to disclose all the fees and commissions that are required under New York law and the client has to acknowledge that in writing. So we do that, but it’s money well spent because you’re basically asking somebody to take over your life after you’re gone and deal with your mess, and it’s a big job. It can be a big job.
Jim Lange: And I can certainly see why siblings might not want to do that.
Herb Nass: Yeah, and there’s always an older and younger rivalry in the family, and I’m the youngest of five and I guess my mother thought I knew what I was doing so she made me a trustee of my older brother’s trust, and it wasn’t even a big trust particularly, but it didn’t help our relationship and ultimately I resigned, and our older sister got involved and she’s been doing it, and God bless her, she can do it, but I didn’t want to do it.
Hana Haatainen Caye: OK, Herb, we’re going to take a break real quick. We are going to be back to continue our conversation about estate planning with Herb Nass and Jim Lange on The Lange Money Hour, Where Smart Money Talks.
Hana Haatainen Caye: Welcome back to The Lange Money Hour. This is Hana Haatainen Caye, and I’m here with Jim Lange and Herb Nass, attorney for the rich and famous and author of “101 Estate Planning Mistakes.” I want to remind our listeners that the show is live and their calls are welcome. The call-in number is 412-333-9385.
Jim Lange: Herb, one of the more entertaining stories that you talked about, which I think has applicability to a lot of people, is the story about Leona Helmsley and her pets.
Herb Nass: You write a book about Leona Helmsley and they have.
Jim Lange: I’m sure they have, but particularly the $12 million bequest to Trouble. Maybe you could tell our listeners a little bit about Trouble, and perhaps share with us some of your views on how you think pets should be provided for?
Herb Nass: Well, I actually met Leona Helmsley on one occasion, and I was in her apartment. I was a witness to one of her wills many wills ago, and she was really quite a nasty person. She was very rude to me. I was a young attorney and she couldn’t have been more dismissive and rude. But other than that, she was a lovely person.
Jim Lange: OK!
Herb Nass: It’s kind of ironic. My office for almost 20 years was in the Helmsley Building, and it’s right in the middle of Park Avenue in the middle of Manhattan, and every Christmas, they would put a big cross on it made from lights. It was a big crucifix and it just so happened that my office was in the middle of that cross and I noticed that my electric bill went up every December. So I complained a little bit about it and somehow the story made the newspapers and Leona was not very happy about that. But they did give me a rebate on the electric bill.
Jim Lange: Well, I’m glad to hear you got your rebate.
8. Leona Helmsley Aside, Your Estate Can Provide for Your Pets
Herb Nass: So, I do not have anything against Leona, but I have tangled with her in the past. But in her trust, she made four mistakes that are actually in the book. One of them, of course, is giving $12 million to her dog named Trouble in trust, and you know, that’s an absurd amount of money to put aside for a single pet. So, that was what the trust agreement provided. Ultimately, her executors petitioned the court to reduce that amount, so it was reduced to a mere $2 million in trust, and Trouble actually died relatively recently, a few months ago, but until then, she was being taken care of with the income and/or principle from that trust. So, you know, that’s an absurd thing to do to give that amount of money to a single pet.
But people can provide for their pets and it is a trend in estate planning. We have numerous clients who, you know, their pets are like their children, and are even more important than their children in some cases, and there’s no reason that a person shouldn’t be able to provide that the animal should be properly provided for and it’s the humane thing to do. You know, on a practical level, if you live alone and you have a pet, you need to make sure somebody has keys to your apartment and can get in if need be, you know, the person who might have your power of attorney, and you want to have some contingency plans for just dealing with your pet if, God forbid, something bad happens. So that’s important because, you know, you can write whatever you want in your will, but the fact is, a will takes days or weeks or months or even years to get probated, depending on the situation. So, you know, you got to provide for your pet, and you can have an agreement with someone who could be the caretaker if you die, and you know, there are various ways to do it. In your will, you can bequeath your pet to a friend with a dollar amount, $25,000, $50,000 or whatever, to your friend to do whatever they want to do with that for the pet or not, or you can be more elaborate and put a larger amount of money in trust for your pet.
One of my clients had two cats. She had no children and no spouse, and she loved her cats, and so she named me as a trustee to those cats and she put $200,000 in trust for them. One of them died before she died and we never changed the will, and we drafted it differently so there was a little bit less if there was one pet, but long story short, it was $200,000 and the pet was taken care of by her doorman and his family, and the will said upon the death of the pet, I, as the trustee, was to give the remainder of the trust to the doorman, but I needed to make sure that the pet didn’t die from any foul play. If the pet was killed by the doorman and then he couldn’t get the money, then I was directed to give it to pet charities. So, we did an autopsy on the cat when he died, a cat named Ming, and everything checked out and it was natural causes, and I was very happy to turn the money over to the doorman who paid for his kid’s education with it.
Jim Lange: Well, I’m glad to hear that you are an active fiduciary looking out for the benefit of your children. We have a question from John from the North Side. The only thing, John, is I’ll ask you to try to keep the question a little bit simple, if you can, OK?
John: It’s a simple question.
Jim Lange: OK, here you go, John. What’s your simple question?
John: If you have three children and divide it up in thirds, who cares what they do with the money? A third goes to a spendthrift, a third goes to the second in line who uses it for food because he’s unemployed, and the first one…
Jim Lange: OK. You have to turn the radio off. Yeah, there’s a little bit too much noise here, but I think that we can address your question.
John: Well, it’s pretty simple.
Jim Lange: Well, I don’t think it is so simple. Maybe, Herb, why don’t you chime in on your comment to the listener’s question, and then I’ll give my own little version also.
Herb Nass: Well, why don’t you start, because I’m not really sure I even heard the question.
Jim Lange: OK. Well, I think the listener wanted to keep things simple, and let’s assume that we have three children…
9. Will Should Explain your Thinking Regarding Each Child
Herb Nass: The question is: How do you divide it among your children? You know, every child has different needs and different issues in their lives. They have good marriages. They may be heading for divorce, in which case it may make sense to hold it in trust for them until they’re not married to that person anymore. So, you know, that’s something to look at if there’s significant amounts involved. Ultimately, it’s best for parents to try to be as equal as possible with their kids, but it’s not always going to be right. There may be situations where it’s not right. Maybe one kid is enormously successful financially and clearly doesn’t need the money, where his siblings do. So, if you’re going to do that, then you write in the will why you’re doing it. You say, “I love all my kids the same, but it’s because of their differing economic circumstances that I’m doing what I’m doing.” The thing is, the guy who’s really the rich guy today may have a huge business reversal next year, and all of a sudden, he’s not so rich anymore. So you got to keep an eye on that.
Jim Lange: And what I would add to that is, a lot of times … and I’m seeing this more and more where we have adult children who are maybe not appropriate with money, who might have a drug or alcohol problem, or might have a potential divorce situation, and what I tell people in that situation is, you still … and even if your child spends money in a way that you think is inappropriate, which I often get because I’m typically working with, let’s call it, the Great Generation, maybe people between 60 and 85, and their kids tend to be Baby Boomers who might not spend in the same patterns. Even if your son or daughter doesn’t spend or do things that you would approve of, you still never want them to be under a bridge when they’re 70. So I would rather, at the risk of insulting them, leave the money to them in a trust to make sure that they are provided for their entire lives, and a lot of times, I would not be willing to just leave money outright to a spendthrift, have him blow the money and then be under a bridge later in life.
Herb Nass: Well, I agree with you. Yeah, I agree with that totally. Yeah, I mean, I wasn’t sure what he was saying.
Jim Lange: Yeah, I think he just wanted to keep things simple. And the other thing that I would say is what I do in the documents that I draft is I like to include a lot of flexibility in estate plans. So, what I might do, let’s just keep a real simple situation where you have two children, and each of those two children have two children. So, you have two children and two grandchildren. I might still leave the money 50/50 to the kids, but then I would leave each child the right to disclaim, or say “I don’t want it.”
Herb Nass: Yeah. The will has to be drafted accordingly so it goes to their kids.
Jim Lange: Right, and that’s particularly appropriate in the IRA and retirement-plan world because even a relatively small amount of money in an IRA or, better yet, a Roth IRA left to a very young beneficiary can mean enormous long-term financial benefits if they take advantage of the stretch IRA.
Herb Nass: Right.
10. Failing to Properly Draft, Execute Stretch IRA Is a Huge Mistake
Jim Lange: And I know that sometimes for some of your clients that the IRA might not be a major component of the estate, but at least in Pittsburgh, a working town, and with most of my clients working with estates between, probably, $500,000 to maybe $3 or $4 million, a lot of times, the IRA is the primary asset and it is very important that the IRA beneficiary designation be drafted properly, and properly I mean to make sure it goes to the right people, and perhaps even more importantly, that the IRA is not accelerated because of either a mechanical or a drafting mistake, and as I understand it, the, what we call, a stretch IRA, when you can continue deferring income taxes on the inherited IRA for many years, maybe 20, 30 or even 50, 60 in the case of grandchildren, years after the IRA owner died, is only done correctly 5 percent of the time. So, I know that that’s not one of your mistakes, but if I was going to do my own book of mistakes, I would say that not providing properly for both in the terms of drafting and the execution of a stretch IRA is an enormous mistake.
Herb Nass: Yeah, I definitely agree with that, so that’ll be in the next volume.
Jim Lange: OK, that’ll be the other one. And the other one, as long as we’re talking about IRAs, the other one that I would add in the IRA world is a lot of times, I see people, and not with documents that we draft because I try to redirect it if they do, is they leave money to charity in their will, and let’s just say, for discussion’s sake, that you had a $1 million estate and you had money in IRAs and you had money outside IRAs, and let’s say you were going to make a relatively modest bequest based on the size of the estate, let’s say $10,000 or even $100,000 or whatever it might be, is I see people leaving it in their will when it makes more sense to me to leave charities a percentage or an amount of the IRA.
Herb Nass: For sure, the income and the state tax benefits, no question.
Jim Lange: Right, and that way, it’s not included in your estate and if you think about it, if you’re leaving a charity an IRA, you’ve never paid income tax on that money, and then the charity gets it…
Herb Nass: Right. You got a deduction going in.
Jim Lange: Right. And the charity doesn’t pay any taxes.
Herb Nass: Yeah. That’s the way to go.
Jim Lange: That’s kind of a win-win.
Herb Nass: That’s definitely the better use of your IRA when you’re charitably inclined.
Jim Lange: Yeah. Now, one of the other things that you said which was kind of the opposite, because I actually had another estate attorney on and he said that he thought it was an interesting idea to do a videotape, not necessarily to have it be legally controlling, but to tell the heirs what you were thinking when you were doing certain things and to express some of the values and some of the hopes, and he actually made a point of saying that the will is the legally binding document.
Herb Nass: You know, I don’t disagree with that. I think, you know, I’m not exactly a cinematographer here, so then it’s another expense. You got to deal with that and if it is going to be a will contest, that could be discovered and yeah, maybe it’ll help you but maybe it’ll hurt you. So, it’s certainly something they didn’t do a hundred years ago, but I’m not saying it’s wrong under every case.
Jim Lange: OK. And what you said in your book, if I remember right, was it’s not to be used instead of a traditional will.
Herb Nass: Yeah, well, that’s certainly not possible currently. We need the original document with wills. That’s why we can’t scan them. We need the originals, and that’s what the court wants to see, and a video, it would only come in if there’s a will contest and I guess if it’s a bad video, you would destroy it right away, but it’s not something that I think is necessary. If you have a client who’s a movie star and they like to be in pictures, maybe you do that.
11. Dividing ‘Stuff’ Can Be the Most Contentious Issue Among Heirs
Jim Lange: Well, that brings us to the next potential estate planning mistake, and that is the bequest of tangible personal property, and to translate that to a non-legal word, I would call it stuff.
Herb Nass: Stuff. Objects.
Jim Lange: Objects, and perhaps some of the more interesting objects you have dealt with are objects of art, whether they be paintings or murals or others, but maybe we could expand the discussion to other types of personal property, and perhaps you could say maybe one or two mistakes that you have found in the past?
Herb Nass: Sure. Well, you know, often, the tangible property is what causes the hardest feelings amongst the children and has the most sentimental value. Money doesn’t have sentimental value, but the piano that was in the family home for all of those years does, and it’s just important that that be addressed in a sensitive way, and usually you leave your tangible property to your spouse, but if you don’t, probably you’re going to leave it to your kids and then, the question is, how do they divide it? Do you want to specify certain items for certain people, which you can do. It’s legally binding if it’s done in the will.
You can also do a more informal side letter that you give to your executor that says here’s who I want to get what. It’s not legally binding, but it gives the executor the instructions. You know, you have to be very careful with tangible property. You need to get an appraisal very promptly so everyone knows what’s what. You’ve got to do an inventory quickly because things have a way of disappearing quickly. And then, regarding how it’s distributed, if it’s going to your kids, you want to have a mechanism in the will for how they select. Sometimes, we say they pick by lot, basically, and go in order. Each child gets a choice of going around the home and picking stuff and tagging and putting a colored sticker on each item. And then, to make it very fair, we say OK, oldest to youngest child, and then we say the second round is youngest to oldest child. So, you want to address the issues. Obviously, if you have one child, it’s a non-issue. But if you have a lot of kids, as a parent you want to deal with how your stuff’s going to get divided up.
Jim Lange: Or even just two children. We’re going to have to take a break now, but before we do, I do want to just repeat the name of the book because I really thoroughly enjoyed the book, and I understand why you got both celebrity and very substantive endorsers and testimonials. The book is “101 Biggest Estate Planning Mistakes,” by Herbert Nass. Herb, would you say the best place to get that is on Amazon, or should they go to your website itself?
Herb Nass: Well, no. Amazon’s fine.
Jim Lange: OK.
Herb Nass: That’s the simplest way these days.
Jim Lange: Alright, “101 Biggest Estate Planning Mistakes,” by Herbert Nass.
Hana Haatainen Caye: OK. We’re going to take a break right now. We’ll be back to continue with the conversation about estate planning with Herb Nass and Jim Lange on The Lange Money Hour, Where Smart Money Talks.
Hana Haatainen Caye: Welcome back to The Lange Money Hour. This is Hana Haatainen Caye, and I’m here with Jim Lange and Herb Nass, attorney for the rich and famous and author of “101 Estate Planning Mistakes.” Do you want to continue the conversation now?
Jim Lange: Yeah. Herb, one of the mistakes was, and you have an entertaining story about it, is not funding a trust, and I wonder if we could spend a couple of minutes talking about the difference between doing a traditional will and doing a revocable trust to avoid probate and your experience in that area? And it might be a little different in New York than Pennsylvania, but why don’t we start with your experience and then go from there?
12. Trust or Will? You Need to Have Both to Avoid Probate
Herb Nass: Well, the question comes up very often: Should I have a trust instead of a will? And the answer is no. You should have both. If you’re going to have a trust, you need a will for the following reason: A trust only applies and only affects the property that’s in it. So, you can set up a trust during your lifetime, but if you don’t change the title on your assets from your name individually or some other name into the name of the trust you’ve established, then those assets don’t pass according to the terms of the trust. It’s so basic that you think everyone would realize it, but I recently got a new client as a result of the fact that his fancy uptown law firm set up a beautiful trust for him so he could avoid probate, but when he was telling me about it, I said, “So, have you moved all of your assets into the trust?” And he said, “No, I haven’t moved any.” I said, “So, you’re not avoiding probate.”
Of course, what is probate? Just so everyone knows, it’s when you go to a court and ask them to probate or prove the will, to say that the will you’re offering is the valid last will and testament, at which point, the will gets admitted to probate and an executor is named and the court issues letters testing entry, and then the estate moves on. But with a trust, the assets need to be transferred into it during your lifetime. Otherwise, you’re going to have to go through probate, and if that’s the point of establishing the trust, then you’ve done nothing to get there. So, it’s a very common mistake, even for very wealthy people. It’s not that easy. It’s a big pain in the neck to transfer title on all your assets into a trust, but it can be done and, you know, if you want to avoid probate, you have to do it that way.
Jim Lange: I know in our office that we actually charge more money for revocable trusts than just doing traditional wills, and the reason is not because it takes that much longer to draft, because the difference in drafting is really not significant, but we actually spend time helping clients transfer assets, and since we typically do things on a flat-fee basis, I actually build in at least a couple hundred, sometimes more, dollars for the extra time to help clients with that transfer because what I don’t want to do is what I see so often, which is the following assets are transferred to the trust. “Please see Appendix A,” and then Appendix A is blank and no assets were transferred in.
Herb Nass: That can be very time consuming, and these days, banks really don’t make it that easy to transfer title even on a simple account. So, you know, it can take up, depending on the assets, of course, it can take a lot of time. You have to do a new deed for your property so that the house is owned by the trust. So there are a variety of things that need to be done, but I agree that a trust ends up being more complicated, and in my opinion, in most cases, it’s not necessary. You really just need to document a will that speaks at the moment of your death. Until then, you can handle your own assets the way you want to handle them. You know, if you feel like you might not be able to manage your assets as you get older, then maybe, you know, if you don’t have a spouse, then maybe a trust does make sense to allow somebody to assist you with that. But a straight, normal will is usually more efficient and cost-effective.
Jim Lange: And that, by the way, is how the majority of estate plans that I have done … although, I will have to admit that as I continue in my practice, one of the issues that sometimes has become more prevalent as my client base ages is more frequent occurrences of either dementia or Alzheimer’s, and in that case, it is very convenient that the money has already been transferred into a trust. So, that’s one of the things.
Herb Nass: A trust can be very helpful, no question about it. But if the goal is to avoid probate, then you’d better make sure that every asset gets into it, or else you’re not avoiding probate.
Jim Lange: We’re certainly on the same page with that one. One of the mistakes that you talked about was the storage of the will, and I actually have a little story about will storage after you tell us a little bit about some of the mistakes that you have seen and what you think is the most prudent thing for somebody who has written a will, presumably with the help of an attorney, in terms of where that will is physically stored.
Herb Nass: Well, as I mentioned earlier, it’s very important to maintain the original will in good condition and make sure it’s never damaged because that’s the document that the court is going to need to see and make sure it looks like it’s correct. So, what we normally recommend is that the attorney retains the original in a fireproof vault on his or her premises and that the client get a photocopy, and under New York law, and probably most states, if an original will is lost when it’s in the possession of the client, then it’s presumed to have been revoked by the client. If an original will is lost while the attorney still holds it, then there’s no such presumption, and the copy that the client gets can be probated. So, it really makes sense for the attorney to hold it. I mean, sometimes clients say, “Well, I’ll just put it in my safe deposit box,” and that’s really a terrible idea because often that box is sealed or it takes some time to get access to it and you may not be able to get to the will without a court order. I mean, obviously, you can have the box in a corporate name or some other name, but having it in a box creates another complication, and we always tell our client “Look, the will is yours. When the day comes, we’ll release it if we’re asked to. Obviously, we’d be pleased to help your executor with the estate if that’s appropriate, but it’s your will. We’re storing it for you at no charge just as a courtesy.” And really, we’ve never lost a will. I hope we never do, but it’s smart for the client to let the lawyer hold it in almost every situation.
Jim Lange: Well, I would agree with that, and you also mention that the attorney will hold the will in some type of fireproof vault or fireproof drawers. On February 16, 1998, our office suffered a fire, and it wasn’t completely burning in flames, but the smoke was so bad and the heat was so intense that basically all of the paper in the office, all the tax returns, all the things that we had out and in regular drawers was either destroyed or burned or had that terrible smell, and it was in bad shape. However, all our wills were prudently kept in a fireproof set of drawers, and they came out perfectly. So, I like to tell people that my fireproof drawers were actually tested.
Herb Nass: Yeah. Well, I’m glad to hear that. Of course, on a situation like September 11th, that didn’t help.
Jim Lange: Well, I guess not.
Herb Nass: A couple of law firms in the Twin Towers, I’m told all of their wills were obliterated.
Jim Lange: Yeah, I guess I didn’t even think about that one.
Herb Nass: Hopefully, we’ll never have to think about that one again.
Jim Lange: Right. But that also brings up, and we only have time for maybe one or two more mistakes, even though you list 101 in the book and I’m probably sure that you could come up with a lot more, but one was impulsively changing your will, and that might be a reason to keep it at an attorney’s office just so that you can’t get really mad at somebody and start scratching things out, but maybe you have a story or some advice regarding…
Herb Nass: Well, you know, do-it-yourselfers, when it comes to wills, are really not doing themselves a favor because wills need to be properly executed and, you know, you may decide that you know how to change it but you really don’t, and if it’s not done right, it won’t be effective. So you may be tempted if you have your will in your night table by your bed to cross out Aunt Gladys’ bequest, but that won’t do it. So, you know, having to go through the filter of a lawyer you trust to help you with this is sensible.
Jim Lange: Yeah. I remember all of those cases in law school about people scratching things out and whether it was valid and whether it wasn’t, and I think the moral of the last two mistakes is you really are better off having the attorney hold the will, which, in our office, is the same as yours, that we do without a fee, and we would happily give up in the event that somebody chooses a different attorney or maybe changes states.
Herb Nass: Well, Jim, it seems like you and I see eye-to-eye on a lot of things. You need to come visit me here in Manhattan sometime.
Jim Lange: Well, I probably go up that way more than you make it to Pittsburgh, so…
Herb Nass: I’m embarrassed to say I’ve never been to Pittsburgh, but I would really love to come visit. I knew Andy Warhol and I would love to see that museum and all the other beautiful things about Pittsburgh.
Jim Lange: Well, that might be the last issue that we have time for because you mentioned the Andy Warhol Museum, and I actually took a little offense to what you said, but I’ll let you say it anyway, and then some of the Pittsburghers…
Herb Nass: I said I knew Andy Warhol, and his will was just too vague on what he wanted. I mean, we all know he left Pittsburgh as a very young man and never went back, and you know, I know Pittsburgh’s a great city, but he didn’t spend a whole lot of his adult life there.
Jim Lange: And you don’t like the fact that the Andy Warhol Museum is housed in Pittsburgh.
Herb Nass: It’s hard for me to get to. That’s what I don’t like. But now, I need to get there to show I’m devoted to Andy Warhol and also to Pittsburgh. I’m sure it’s a wonderful city I haven’t had the pleasure of visiting. One of these days, I’ll come visit you.
Jim Lange: The book is “101 Biggest Estate Planning Mistakes,” by Herbert Nass and you can get that at Amazon.com.
Hana Haatainen Caye: OK, I want to thank you, Herb, for joining us tonight.
Herb Nass: Thank you for having me.
Hana Haatainen Caye: I want to thank our listeners for joining us for another Lange Money Hour, Where Smart Money Talks. I’m Hana Haatainen Caye here with Jim Lange. We hope you found this discussion enjoyable and educational. This show will air again on Sunday morning at 9 here at KQV. Join us in two weeks when we’ll be talking with Ed Slott, who “The Wall Street Journal” named as the best source for IRA advice. This is a show you won’t want to miss.