The Difficulty with Retirement Accounts

Here is an important question: Who can (and will) oversee and help safeguard your tax-deferred retirement accounts? The absence of an easy answer creates the following difficulty. [1]

The point underpinning this difficulty is that the tax law does not allow ownership of a tax-deferred retirement account by the account owner’s living trust. The law allows no living trust option. Without this trust option, there can be no successor trustee who oversees and manages the living trust assets in the event of the account owner’s age-related incapacity, etc. [A qualifying trust is allowable only after the individual dies; but the point of this blog post centers on the owner while still alive.]

This lack of living trust oversight creates exposure, for example, for failing to make the required annual distributions, etc., resulting in substantial tax penalties; threats of Madoff investment scams; friends and others persistently pressing for financial handouts resulting in larger distributions from the account than what otherwise is prudent, etc.

Realistically, while the retirement account owner is alive, the tax law limits ownership either (i) in the owner’s name; or (ii) in a financial institution trustee’s name, called a “trusteed IRA”, that in most cases I do not recommend. The last paragraph of this blog refers to the unsuitability typically of the trusteed IRA option.

Due to this individual ownership option, I recommend a separate, well-drafted retirement accounts power of attorney (“RPOA”), expressly covering a broad range of specific powers for the named agent, plus with the RPOA designed to help overcome the following increasingly difficult hurdle.

This hurdle is the refusal of many financial institutions to honor a broader, more general power of attorney. This is where banks, financial institutions, etc., simply balk at acting under the directive of a power of attorney.

Why the hurdle?  Financial institutions are understandably concerned about their risks when dealing with an agent under a power of attorney (rather than directly with the principal), and the related significant pressure these financial institutions face for anti-terrorism transparency, and their need to avoid lawsuits among family members, etc. But, this institutional self-interest cuts against the interest of the retirement account owner.

The RPOA, therefore, helps balance these risks for both the institution and the account owner. And, although I can provide no guarantee these institutions will honor this specific, particularized RPOA, its detailed provisions arguably provide reasonable and substantive strength in support of the institution not so easily being able to deny the document. The RPOA might also support a position that a financial institution’s denial of the RPOA is unreasonable, potentially opening the door for damage claims against the institution.

As an aside to this RPOA situation, I am fully aware some financial institutions are mandating that account owners use only the institution’s power of attorney form. But, these institutional forms include overly-generous liability waivers with indemnification clauses favoring heavily the financial institution for its own protection; these institutional forms exist for the institution’s benefit, not for its customers.

As another important aside, below are the heading topics for the RPOA document I recommend:

  • Scope
  • Applicable Jurisdiction
  • Successor Designation of My Agent
  • Written Acknowledgment by a Successor Agent
  • Coordination With Other Powers of Attorney
  • Effective Date
  • Release and Indemnification of My Agent
  • Third-Party Reliance on this RPOA
  • Conservatorship / Guardianship
  • My Intent
  • Annual Minimum Distributions
  • Additional Distributions
  • Exclusive Power to Direct
  • Roth Conversion / Medicaid Annuity Planning
  • Checks on My Behalf
  • Spousal Roll-Overs
  • Modification / Change of Accounts
  • Naming of Custodians for Minors
  • No Power to Change or Revise Beneficiaries
  • Investment Delegation Powers
  • Tax Elections
  • Incorporation by Reference of Fiduciary Powers
  • Permitted Use of Certified Photocopies

Finally, back to “trusteed IRAs.”  Under the controlling tax law, a trusteed IRA (i) does not allow a spousal rollover for the surviving spouse and (ii) requires that the financial institution overseeing the account must be the sole trustee. I also find most often a trusteed IRA agreement locks the financial institution in as trustee after the account owner’s death, thus barring any change by the beneficiaries of the investment management platform or removal and replacement of that institutional trustee.

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[1] I refer to “IRA” in this blog post, but, the same discussion applies generally to corporate or self-employed (“Keogh”) pension, profit-sharing, defined-benefit, and stock bonus plans, SEPs, 403(b) plans, IRA and Roth IRA accounts, inherited IRAs, spousal rollover IRAs, 401(k) and Roth 401(k) plans, and 457 plans. It also applies to a judgment, decree or order for any retirement plan, for payment on the owner’s behalf of child support, alimony or marital property rights, referred to typically as a “qualified domestic relations order.”

A Protective “No”

My father was a lawyer; I am a lawyer. I have never experienced not having a lawyer easily, and cost-effectively, at hand. And, I ponder often about the reality (and inequity) of most people not benefiting from a relationship with a good lawyer and often not having funds to pay for excellent legal work.

The email I reproduce below (names purposely changed) prompted this blog post, for the notion that more people might be able to avoid costly legal problems by at least getting a “no” from a lawyer. I provided my quick and prompt “no” response to the following email. By at least asking for my reaction to the email, the son now is able to stay away from the faulty prenuptial planning referenced in the email. He was smart to “cc” me with the email:

Hey dad,

As you know Jane and I are getting married soon.

We love each other and I can’t imagine anything bad happening in the future, but I’ve heard some really ugly divorce stories about other marriages.

Just to be safe and to protect my inheritance, I want to look into a prenup.

I’ve read online that you can print a free document and have it notarized, but I don’t know if this will hold up in court. (think it will)

If I go through an attorney, then it will cost $2000 for the document.

Can you check with James to see what he recommends?

Thanks,

John

This absence of lawyer-oversight, in my opinion, ultimately opens the door down the road for costly litigation and legal problems, far more expensive than if preventive planning had been in place. Jimmy Carter, during his presidency, spoke (in 1978) at the 100th anniversary of the Los Angeles Bar Association and, in part, said: “Ninety percent of our lawyers serve 10 percent of our people. We are over-lawyered and under-represented.”

I intentionally restrain in this blog post from railing against certain aspects of our legal system. But, the above email is in line with the point that many people can be much better off in the thicket of our legal system if they — at a minimum – seek legal counsel to ask if they should not do something, as follows.

Most typically, a client engages a lawyer to move forward and create something for the client; for example, a sales contract, stock agreement, estate planning document, lease agreement, intellectual property protections, tax-savings planning, etc.

This moving forward for generating a document or plan-of-action also includes the lawyer inevitably having to consider and take into account what the client should not be doing. [As an aside, my comments for this blog post center on non-litigation legal work and on preventive efforts to reduce or avoid exposure to litigation.]

The above slice of the lawyer’s work dealing with the “should not be doing” element is itself an independent option for people who, for whatever reason, do not wish to pay for the lawyer to move forward with document(s) or a plan-of action.

There can be great value in being able to ask a lawyer about what one should not do, such as not signing a proposed employment agreement, not signing a proposed business document, not signing lawsuit settlement papers, not obtaining an internet Last Will and Testament or other free or low-cost legal documents. In other words, at least knowing what not to do reduces a considerable number of costly legal issues and problems down the road.  A protective “no.”

Kane Law changing to KaneTreadwell Law

I am pleased to announce that Atlanta lawyer Cheryl R. Treadwell on May 1 will be joining me in our new law firm KaneTreadwell Law.  We will relocate our offices to the Monarch Plaza in Atlanta on Peachtree Road (across from Lenox Square).  Cheryl started her career in Chamberlain Hrdlicka’s litigation group.  She was also a lawyer in the City of Atlanta’s legal department. We both bring together our experience in a way that will be more broadly beneficial for our clients.  More details to follow.

The Rule of Law; Your Elder Years.

The title to this post is partially a teaser.  My post ultimately centers below on the horrible abuse of some court-imposed guardianships / conservatorships, as a chilling reminder of how everyone should avoid getting into this court-oversight snare. Adequate trust and estate planning — purposely designed to avoid a guardianship / conservatorship  — is imperative.

My concern — as a lawyer — about the above snare also appropriately fuels my persistent opposition to those who narrowly overemphasize application of the “rule of law” doctrine, to the exclusion of equitable and other balancing considerations.

Merriam-Webster defines rule of law as “a situation in which the laws of a country are obeyed by everyone”.

Legal, political, social media, etc., often in my view, overplay the rule of law doctrine.  With sanctimonious rhetoric, the loudest adherents preach that we are a nation of laws, and those laws — under the rule of law — must be strictly applied to and followed invariably by each of us.

My recommendation is that you take a few moments and read this October 9, 2017 The New Yorker magazine chronicle, captioned “How the Elderly Lost Their Rights”.  It is about the abuse of certain court-imposed guardianships and conservatorships.  Even with the durability of my many years of lawyering, I found this piece frightening and symbolic of a great threat to each of us and our families.  Click here for the link to this piece.

Read this The New Yorker piece, and then ask yourself how you feel about the rule of law.  As we all age, the next rule of law victim might be one of us.

Also, I am not suggesting in any manner we abandon the rule of law.  It is a crucial element for society, and so forth;  but, as with any area of law, I firmly believe all laws should be subjected to constant challenge and refinement for our collective good.  Blind faith as to any law poses a threat to each of us.

 

Asset Protection Trust Planning for Divorce (a Nevada Win)

Here is a link to my recent publication in Steve Leimberg’s Asset Protection Planning Email Newsletter – Archive Message #358 (dated February 15, 2018), titled “Augmenting the 2017 Nevada Trust Win in Klabacka“.   Klabacka is the name of a 2017 Nevada Supreme Court opinion. You are welcome to pass along a digital or hard copy of my Leimberg piece to any other readers.

I suggest in this piece the possible  use of a prenuptial (or in some cases postnuptial) agreement in conjunction with self-settled asset protection trusts, as a way to protect each spouse’s respective property in the event of divorce.

But, because from time to time I also assist divorce lawyers with attacking and finding  chinks in the defensive armor of a divorcing spouse’s trust, this Klabacka piece also provides a backdrop highlighting the importance in any protective trust planning situation of crossing each “t” and dotting each “i”.  The devil in the details most often is the tipping-point difference in whether defensive trust planning succeeds, or fails.

As I state in this Klabacka piece, some lawyers — with too much overconfidence — cut corners in their trust planning process, especially failing to give sufficient attention to long-arm jurisdiction exposure when (and if) the trust becomes the target of litigious attack.

 

 

The Privilege of the Proverbial “Finger”

Being a lawyer makes me hyper-attentive to whether anyone’s rights are being denied or limited, and what that person must do to exert the necessary power to address a situation (e.g., through persuasion, litigation, preventive planning, etc.).  In these circumstances, one has to utilize purposeful power to right the situation, rather than merely hoping for some pleasant, affable, go-along / get-along resolution.

With my blog easily at my disposal, and both as a lawyer and individual, I cannot sit back silently in the midst of what I consider to be completely misdirected attacks against Colin Kaepernick and other NFL players voicing their protests.   I refer further below to  a racial epiphany I had a couple years ago relevant to these NFL protests.

I have enjoyed the benefit of white, male privilege my entire life. I grew up in north Fulton county Atlanta. My father was a successful lawyer; he and his three brothers attended college in the 1930s [Vanderbilt, Davidson, and MIT]. All three were Phi Beta Kappa graduates.  My father graduated number one in his Vanderbilt law school class.  He was the only law student in his class who, immediately upon graduation during the depths of the depression, secured a lawyer job (with attorney Bill Sutherland of the then-Atlanta law firm Sutherland, Tuttle & Brennan), and on and on.  Most importantly, during my entire life I have had the liberty essentially to give anyone the proverbial finger, without any thought or fear as to how I am, or may be, perceived.

Here is the epiphany I experienced two years ago.  My wife, kids and I had dinner with a family whose kids go to the same private school as my kids. We are longtime friends. Our friends are black. The father – we’ll call him  “Mark” — and I were having after-dinner drinks. Mark is a successful executive at a large Fortune 500 company.

As Mark and I talked over drinks, I commented — because I was growing my hair longer — that if I were a black guy I would probably have the most militant afro possible.

Mark responded by stating that, as a black man, he cannot sport the afro I referred to (not that he even wanted one). Mark said that having a large afro would create an extended array of additional problems for him.  Possibly more night-time police stops while driving or being characterized as some kind of radical Black Panther, etc. Mark acknowledged that he has to toe the line so as not to create these potential racial misperceptions, and that he has to teach his children to be aware of these same misperceptions.

My reply to Mark was that this burden he and other blacks carry is a consideration I had never in my life had to worry about (or even think about).  For example, I can drive anywhere I wish at night and sport whatever clothing or hairstyle I choose without fear of being misperceived (and even if I am, there will likely be no consequences). I can walk anywhere, or into any store or mall, without people clutching their handbags, or purposely crossing the street to avoid me, etc.  I can disagree with anyone I choose.

Up to that night, it had never occurred to me that Mark and his family face any social differences or prejudices compared to others in our network of school friends and families. I simply assumed we all had arrived at the same status in our lives as to  our children, our own college education, successful jobs, comfortable homes, our children’s private school education, social status, etc. The point is I had never even considered or thought about any disparity among our families.

For the first time I realized that even my good friend Mark — although outwardly as successful as (and likely more so) any of our mutual network of family and friends — has to bear a burden of racial bias completely foreign to me.  With this revelation, I realized Mark cannot avoid this ever-present element of race-tainted perceptions of himself and his family members. Nor can Mark use the proverbial finger (or even exhibit the spirit of the finger) as freely as I can. I perceive Mark’s situation as a powerfully insidious and persistent form of inequality and denial of liberty, in a way possibly not yet perceived, let alone understood or acknowledged, by many white males.

Now back to the NFL players. My assumption is that they – in continuing the protests on behalf of themselves and those who are mislabeled and misperceived because of race – understand (and feel) this inequality. And, I believe it is a misdirected fallacy among many critics of these NFL players who express the notion that the NFL players should be thankful and grateful for their money, fame, and success and, accordingly, toe the status-quo line without protest.

My view is that these NFL players, by using the power that the money, fame, and success gives them, are able to more directly and openly draw attention to this racial disparity in a way that now has triggered the closer attention this issue deserves. These players are no longer merely toeing the line, nor should they.

One further comment from my view as a lawyer. Our greatest liberty in the U.S. is the right to protest, dissent and disagree openly. Merely stating someone is disrespecting the flag by kneeling during the national anthem is a knee-jerk platitude that diverts attention away from considering why the NFL players are protesting; and, how we all might be more receptive to try and better understand the rationale and underpinning of these NFL player protests.  My view is that our flag — and the freedoms and rights it so importantly symbolizes – is an icon consistent with why these players can (and may) choose to kneel in protest.

My hope with this blog post is that my white male readers can at least consider the tremendous privilege we have; and, in view of that privilege, be willing to imagine themselves for a moment in the place of these NFL players who, in my opinion, are unselfishly courageous in helping shed more light on these racial issues.

As Edmund Burke aptly said, “The only thing necessary for the triumph of evil is for good men to do nothing.”