Wednesday, May 28, 2008

Should You Donate Special Assets?

Further to my visit with Mr. Moskowitz a couple weeks back, the topic of donating assets to charity came up. Mr. Moskowitz, whose insights are always, well, incisive, is of the opinion that, if you have a special asset that has value, and you have a favorite charity or charities, the charity would be better served if you sold the asset and donated the cash.

Let's say you have a collection of rare books, and, as a bibliophile, you love the library. A good fit, yes? Donate the collection to the library. But is it a good fit? What most libraries need is money, not more books. Chances are your local library's facilities are too small as it is, and probably cannot handle the extra books. What they really need is more money to buy more shelves, fix that leaky roof, replace those old computers. The library may have nowhere to put the books, and my just stuff them in some damp corner in the basement, or worse, dispose of them. There was a minor controversy when the San Francisco Public Library moved to its new facility. It actually had less shelf space for the books, and many books, including rare first editions, were simply thrown away. It happens.

Another factor is administration. The process of transferring the books to the library may not be as easy as it seems. What if the library rejects the gift? They not want more books, but I cannot imagine they would turn down cash. Also, what if your collection is gone by the time you die (maybe it was stolen, or it went up when the house burned down)? Gifts of specific items are always fraught with administration headaches.

There are, of course, situations where donating a special asset makes sense. If, for example, you have a rare Bugatti (I guess they're all rare), and the Blackhawk Auto Museum has been chomping at the bit to have the car for years. That donation makes sense, and avoids many of the problems above.

You are likely very attached to your collections. The idea of having them live on in an institution you admire is certainly a noble sentiment. But thoroughly consider whether the institution is in a position to accept your collection, whether they are in need of money instead, or are even able to fully appreciate the significance of your largess. They may be better off with the cash.

Wednesday, May 21, 2008

Valuation of Special Assets

I have been away in New York City for the past week (which explains my posting gap). While my wife and I were there, we had the good fortune to stay with some close friends. Our friends Joel Moskowitz and Sally Bernstein live in the Gramercy Park section of Manhattan. Joel owns his own business designing and selling hand tools for woodworking (check out, and is an avid collector of rare books about woodworking and antique tools. We got to talking about the value of his collections, and I suggested that, in a typical estate administration, such a collection would be valued by an appraiser or an auction house when determining the value of the estate.

Joel was adamant that a typical appraiser or auctioneer wouldn't know the first thing about the true value of the rarest books or tools in his collection, and wouldn't value them correctly. And he's right. For most of the ordinary things people own (cars, clothing, furniture), a typical appraiser would be appropriate to value the estate. But what do you do with the book about woodworking from the early 19th century, of which there are only three or four copies in the whole world? Chances are the typical appraiser wouldn't even recognize the rarity of the book, much less be able to appraise it properly.

Joel's concerns point out a not-too-rare challenge in estate planning. If you have any kind of special asset, such as a collection of rare items, or anything that is unusual or difficult to value, it is critical to specifically identify it, and to name appraisers and others who could properly value it. As estate planning attorneys, it is our job to make sure that any special assets have been properly identified and that their valuation and disposition is properly accounted for. Things to think about when you are listing the items you own are:
  • What special collections (such as coins, books, antiques) do I have?
  • Are there any rare or unusual items that I have inherited or have been given as a gift?
  • Are there any other special assets in my estate (such as mineral rights or copyrights)?
  • Who do I know is an expert in valuing these assets?
  • If I don't know any experts in valuation, who do I know who can at least know and understand the rarity of the asset?
For most special assets, particularly financial ones such as mineral rights or copyrights, your estate planning attorney can find an expert to value them. But for obscure and unusual items, you may know exactly who should be valuing them. My friend Joel knew the names of three people whom he trusts to properly value the rare books in his collection. If you know those people, make sure you identify them to your attorney, so that the valuation can be done accurately. As practitioners, it is our job to identify special assets, and to ask the client about assets we are unfamiliar with.

I don't mean to knock most appraisers, who are hard working and knowledgeable, and would in most cases at least know they are looking at a rare or unusual item, and would know to call in an expert. But why take that chance? They might now know the same experts you do. If you know someone whom you trust to value your collection, you should make sure to tell your estate planning attorney.

Good estate planning relies on good information. Getting it and providing it are the responsibilities of both the attorney and the client.

Friday, May 9, 2008

Privacy of Trusts Challenged

A post recently in the Wills, Trusts and Estates Prof Blog mentioned a paper written by Frances H. Foster, the Edward T. Foote II Professor of Law at Washington University in St. Louis. The St. Louis connection lets me finally post one my favorite photos I took during a trip there several years ago.
But I digress. I have not read the full article, but the gist of it, from the Prof Blog, is that the issue of trust privacy has not been properly addressed by reformers, and that the "human cost" of trust privacy should be considered when discussing how the laws related to trust privacy should be reformed.
Presumably, the main concern here is that because trusts are private, they can be created and administered outside the purview of interested parties. So family members, heirs and relatives would not be able to know who the beneficiaries of a trust were, how the trust assets are to be distributed, and what the trustee is doing with the trust assets.
Living tusts, unlike wills, do not go through probate when the settlor, or trust creator, dies. This means that there is no automatic court supervision of the management and distribution of a trust on the death of the settlor, as there is with a will. That does not, however, mean that the court never gets involved with trusts. When a settlor dies or when a trustee changes, California Probate Code section 16061.7 requires the trustee to notify the beneficiaries of a trust, the heirs of the settlor, and where the trust is a charitable trust subject to the supervision of the California Attorney General, the Attorney General. This allows these parties time to challenge the trust, for example. California law also requires trustees to prepare accountings of the trust administration, which is designed to keep beneficiaries up to date on the trust's inner workings. Interested parties can also contest the trust in much the same way that they can challege a will.
While it is true that there is no automatic court supervision of trusts, there are many court procedures for making sure that individuals' interests are protected in a trust. It is certainly debateable whether a trust must be made public in the way that a will is when many of the challenges available to a will are also available to a trust.

Tuesday, May 6, 2008

Estate Planning Symposium (not so) live blogging

Last Friday and Saturday I attended an Estate Planning symposium put on by Continuing Education of the Bar. Speakers included practitioners from San Francisco, San Mateo, and Contra Costa counties. The conference was loaded with very useful and up-to-date information on bypass trusts, marital deduction, generation-skipping transfer tax, and other important topics, but the biggest takeaway was this:

"Estate planning is a process and not an event."

Preparing an estate plan is not something that happens all at once. It may start with a phone call to an attorney, followed by filling out a questionnaire, either by yourself or with the attorney, and then a conversation with the attorney. The conversation is where the planning really begins, because it is there where all of the imporatant information is conveyed: who you are, who your family is, what your goals are. The process of turning this into a coherent plan is not a simple one, and it doesn't end once the will or trust is drafted and signed by you. Your life may change. Your goals may change. The laws may change. The plan, if it is prepared properly, should be structured to accommodate changes, but it must be looked after and cared for.

With that in mind, many practitioners believe that it is therefore impossible to properly do your job with a flat fee arrangement. I have been a great supporter of the flat fee because I believe it fosters creativity and efficiency for attorneys. But I also acknowledge that it may limit an attorney's options, particularly where an estate plan may evolve and become more complicate than either the attorney or their client had originally anticipated.

I don't believe that hourly billing is inherently bad. Nor do I believe that a flat fee for an estate plan is always a bad idea. The most important thing in regard to fees is making sure your client knows that they are getting for their money, and is not surprised by how much it costs.

Friday, May 2, 2008

Off to School

I will be attending a two-day conference on Estate Planning put on by Continuing Education for the Bar (CEB), a joint venture btween the University of California and the State Bar of California. Yes, that's a Friday and a Saturday. All day both days. I am dedicated to my craft.

In the meantime, you can read my guest post on Susuan Cartier Liebel's excellent blog Build a Solo Practice, LLC.

I will be posting on interesting items from the conference.