What happens when a famous Hollywood actor passes away with his financial advisor? What if he has a live-in girlfriend, a child from a previous relationship, and parents… but no will? It’s almost a script made for Hollywood! Join Prism Insurance Agency as we discuss the Paul Walker story: his tragic accident, the fate of his estate, and what lessons we can learn to avoid making the same mistakes.
JIM: It seems we Americans are always fascinated by the stories of the rich and famous, and one story that’s received a lot of air play since his death was the story of Paul Walker, and I recently read an article in the Trust Advisor, which I’m going to refer to today, to talk about some of the issues that face this young, successful Hollywood millionaire. Let’s face it. None of us really plan of getting sick or passing away until it happens to someone close to us typically, so maybe we can learn some lessons that unfortunately Paul Walker had to die to teach us, so again, in the article from the Trust Advisor, the article is “The Unsettled Paul Walker Estate Shows no Millionaire is too Young to Plan,” posted by Scott Martin on January 6, 2014, and I’m not going to read the entire article but just share a couple excerpts and then what I want to do is talk about some of things, whether you’re young or old, rick or poor, that you want to think about in planning so that you don’t have to go through what Paul Walker’s family is currently facing.
In the article they talked about Paul Walker, for example, was barely 40 years old when the Porsche he was in rammed into a tree at 100 miles an hour. The crash was both accidental and fatal. His fans grieved, but his family now apparently has to juggle their mourning with the burden of keeping his Hollywood fortune together. He was raised a Mormon, never married and estimates say that he has as much as a $45 million estate, which was earned in his career that started in his childhood and ended up generating over 40 feature film role; and while that number might seem high, his latest asking price per project had jumped to $7 million in 2009, so he did have the ability to have that $45 million. Another thing in his situation, his extravagances were limited to charity work, tourism, a couple California homes, some fast cars and his 15-year-old daughter, and that’s where it really gets complicated. Meadow, his daughter - her mother, Rebecca McBrain, is reportedly back in the picture looking to regain custody and a share of the family assets. While Meadow moved in with Walker a few years ago, Rebecca did raise the girl on her own until 2011, presumably with some kind of financial support arrangement. Unless there’s a hidden story behind the custody change, she probably has a pretty strong claim, not to mention many family courts would not take a teenage girl away from her birth mother without extenuating circumstances. Meadow may eventually inherit everything but for now, she’s still a minor and will need the support for the next few years. Meanwhile, formal next of kin inheritance rights appear to have reverted to Walker’s parents, which indicates that he probably died without even a legitimate will. If he had an estate plan, it most certainly would have taken the time to spell out custody and inheritance without creating controversies for a grieving family to sort out. Then, it gets complicated. Domestic partners get no respect, and the tabloids are pondering whether that process of sorting out the dead man’s affairs will leave his more recent, long-time girlfriend squeezed out of his legacy. Supposedly, Jasmine Pilchard Gosnell, who had been with Walker for seven years but never married him, resents the idea of being passed over in favor his parents. This sort of thing happens all the time when young singles die and the process cuts even the most responsible and emotionally committed significant others out of the picture. Formalizing the relationship brings legal status. Leaving it nebulous can backfire when something goes wrong.
Now skipping further in the article, there’s a section called “Never Carpool with your Advisor.” In theory, Walker’s financial advisor could produce the paperwork it takes to provide definitive answers to these questions as to what he was hoping to accomplish. Unfortunately, that advisor happened to be Roger Wilson Rodas, the performance auto fan turned Merrill Lynch rep, who was driving the Porsche and died with Walker in the crash. While the idea of an advisor and client dying together is horrifying, there is little evidence that Rodas would have been able to help Walker resolve the estate. Because at the end of the day, the courts are going to rely on what written documents are there, and if there are no written documents, it’s called dying intestate and states will have a predetermined distribution plan which may not be in sync with what a person’s real plans are; so today, what I wanted to talk about is some basic things that you can make sure are in place for you and your family so that your family doesn’t allow some stranger, who’s a judge, and different attorneys battling over what should happen because, unfortunately when the attorneys get involved battling an estate like this that isn’t clearly planned out and written out, it leaves it up to the courts and the attorneys to determine, and that can be a very expensive process, and who pays for that? Well, you guessed it. That money’s going to probably come from the estate and the heirs; so let’s start out with some documents you want to make sure are in place while you’re still alive, and the first one would be the healthcare power of attorney, and what’s interesting about powers of attorney, both financial and healthcare, a lot of times even as married couples, you’ll assume that as a married spouse, you can just step in. Don’t make that mistake. You want to make sure that you’ve given these things some thought and put these documents in place.
A few years ago, we had the situation of Terri Schiavo, who’s a gal who had an injury and was pronounced brain dead, although there was a lot of debate whether she was brain dead or not, her husband said that they had discussed whether or not she should be kept alive and that neither one of them wanted to be kept alive as a vegetable. Her parents thought that there were possibilities that she was reacting to things that she would want to be kept alive. Well because there were no written documents, nobody really knows for sure, but that became a national news story. I don’t think any of the parties intended on that being on the national news but could have easily prevented that from happening just by having clearly defined goals and wishes and not only deciding what you want done, but who’s going to be the one making the decisions, who’s in charge of that; so with healthcare power of attorney, typically if you’re married, you’re going to pick a spouse. If you’re not married, it might be parents, might be a sibling, someone that you know can make the decision.
Financial power of attorney: Financial power of attorney is plain and simple, who pays the light bill when you’re not able to? Who takes care of the bills, depositing checks, deals with bank accounts? Without this in place, if you’re needing care and you’re needing to have things taken care of, maybe you’re in a business, there’re buy-sell arrangements, but who’s going to deal with those issues? It’s your financial power of attorney. A lot of complication can be created by a delay in going through the court guardianship process to have someone appointed in charge of those finances; and again, if you’re leaving it up to somebody who has never met you before, how are they going to make a better choice than you on who’s best to take care of your personal finances if you’re not able to.
Now all these documents that we’re talking about today, I would strongly encourage that you get a competent attorney that focuses on estate planning as part of their practice and is licensed in the state that you reside to make sure that you have state specific documents.
Now another type of document that you may want to consider, and it has to do with how property is titled or how ownership is considered, we have nine states that are community property states, so these documents provide for you defining what community property is and what separate property is. Again, that’s an issue you should be getting competent legal advice to help you with and there could be some significant tax benefits by having these documents in place. If you don’t live in a community property state, there’re other things you want to consider. I know in the state of Florida, they have tenancy in the entirety, which is something you can do with a spouse that might provide some liability protection in case either one of you gets sued. Another thing you might consider is joint tenancy or tenancy in common, joint tenancy with right of survivorship. These are ways that can allow property to be distributed at your death or how it’s to be titled. Is it a split interest or is it a winner-takes-all or survivor-takes-all type of circumstance? Again, a lot of people take advantage of putting these things in place, not really understanding what the outcome is or taking the time to plan what happens if they’re no longer around to dictate that direction.
Now, we’re going to take a short break, and when we come back, we’re going to talk about some additional documents such as wills and trust or after lifetime documents that you should consider whether you’re young or old, rich or poor. All these are things you want to have in place to make sure you and your family stay in control of your destiny. Please stay tuned.
JIM: Welcome back as we continue to discuss the importance of some basic estate planning. Before the break, we were talking about the unsettled estate of Paul Walker, who had passed away without presumably a will or powers of attorney, where right now he has a pretty complicated situation that is, unfortunately, probably going to be debated in the courts as to what should happen regarding custody of his daughter, who is going to receive the benefits from his vast estate? Is it going to be his seven-year relationship, live-in girlfriend? Is it going to be his parents? Is it going to be his daughter? Is it going to be his daughter’s mother? It is a complicated situation that unfortunately wasn’t planned for. So moving on, let’s talk about wills and trusts.
First of all, a will is a way to let the courts know who you want to inherit what you have, and the court system that’s used is the probate court. If you don’t have a lot of assets, this may be a way to go; but whether you have a lot of assets or not, another feature that the will has is naming guardian of minor children. In the Paul Walker situation, he had a 15-year-old daughter. Who is going to be the guardian? Now normally the courts favor the mother, but if custody was switched to Paul Walker based on extenuating circumstances that she wasn’t a fit mother or someone who could be responsible enough for raising that daughter, well now it’s up to the courts to decide. Now, the other thing to consider is if you have a husband and wife or a mother and father and they pass away together in an accident, who’s going to raise those kids? If you don’t take the time to discuss it and figure it out, God forbid families get split up or the kids end up going to a family that maybe doesn’t see eye to eye with the way you and your wife think how kids should be raised; so taking control of that is vitally important for the wellbeing of those kids.
The other thing you may want to consider is a trust. Consider the trust as a legal container that all your assets go in, kind of like a corporation. In a corporation, if the president dies, typically you have other people that step in. You have buy-sell agreements that say who are going to be the owners going forward. You may have a board of directors. There’s continuation but just because a president of a corporation dies doesn’t mean the corporation dies, so the trust is kind of like that; but instead of having a president you have trustees. Trustees are who manage the assets in the trust and follow the guidelines of the trust; and like a corporation, the corporation has bylaws; well, a trust has provisions as to who’s going to get what, when, how and where. Who’s going to manage the assets? Who the trustees are going to be? Now, when you create a trust, you’re a trustor or grantor. You make the rules, and if you set up a living trust, you have the opportunity to change those rules as you go along, as long as the rules you created allow you to change the rules and that’s a decision that you get to make with your attorney when drafting these documents.
Now, one of the big advantages of a trust is you can control the distribution process. You can pick the successor trustees; that might be a family member or a close friend, but you have the flexibility of staying out of the court system, so typical a trust is going to provide more privacy. Again, with the will, you’re able to go to the probate court and see what a person’s assets were, who’s getting what, when, how and where, and maybe you don’t want your kids or your family members dealing with the general public having access to all that information, especially in today’s world of identity theft and things like that. The trust can privately provide for those you want to leave your assets to. The other thing is because you don’t have a court process. In the court system typically you have fees associated with the court, you have attorneys, attorneys’ fees, not to say that you wouldn’t have attorneys involved in the trust, but you definitely have a lot more control with the family, and it can be a lot more efficient way of passing your estate on to your heirs.
Another benefit of the trust is, unlike a will, if there’s not a trust created in the will that provides for a trust to be created when you pass away, a will allows kids to get their inheritances when they reach the age of majority or 18. With the trust and like in Paul Walker’s circumstance, if his daughter is the sole heir of the estate, how many 18-year-olds do you know can handle $45 responsibly much less $45 million. Now, most of us probably aren’t in that circumstance where we have a $45 million estate, but even if it’s a couple hundred thousand, even if it’s $50,000, do you want to set up provisions to make sure that that money truly benefits your heirs in a way you would’ve want them to benefit? So with a trust, you can have provisions in there, for example, that at 18 maybe money is distributed to them but maybe it’s limited to things like heat and medical bills and maybe tuition for college rather than a new Corvette, so it helps you protect your kids when they’re maybe a little bit too young to handle the responsibility of managing money. You also can have provisions in your trust that if one of your kids is divorced or getting sued or going through bankruptcy, that money can be held back in trust for their benefit and truly benefit your heirs. Again, these are all things you want to discuss with your estate planning attorney, and it’s not a bad idea to work together as a team with your insurance professional, your financial advisor, your CPA. It’s a good idea for them all to kind of know what your goals and objectives are, and they each will have a role to play to create the best estate plan it can be for your particular situation; so you’re never too old or too young to plan. You’re never too rich or poor to have a plan in place, and there may be a lot of issues you want to consider when talking it over with your estate planning team, but these are some of the basics; and one thing to consider also for you parents, if you have children that are reaching the age of 18, don’t make the mistake that many parents have and assume that their parental rights consider as long as their child is young. As soon as they turn 18, you lose a lot of power, and let me describe a circumstance that’ll hopefully motivate you to consider this.
When my kids turned 18, we signed financial and healthcare powers of attorney, and I had a son who suffered an accident, and when we went to the hospital, they had confiscated his phone, his wallet and everything else that he had; but one of the problems with that is he was working, and being a young adult, living away from home, we did not have access to his phone, although we kind of knew who he worked for, but we did not know what the phone number was and how to get ahold of him to let him know that he would not be showing up for work because they locked up his phone; and then when it came to discussing with the doctors and everything what his situation was and what their prognosis was and what type of treatment they were recommending or doing, they really didn’t want to share a lot of information with us; and the problem was this accident happened on a holiday. Fortunately, I always keep copies of the documents in my office and the next day, when our office opened, I had them fax the financial and healthcare powers of attorney, and then we were able to be involved with the healthcare decisions and direct doctors what direction we thought he’d want to go as well as notify his employer that he wouldn’t be coming in and be able to notify some other people that we would thought would be important for them to know the circumstance he was in; but without those documents, we would have been powerless, and we can tell you stories after stories after stories where that’s happened; so for your kids’ 18th birthday party as they become 18, consider having them sign financial and healthcare powers of attorney. It just might help an overly stressful situation from becoming overwhelming, and one final note, especially with young kids, if they have their first job, a lot of times there might be benefits there with IRAs or life insurance or there might be some type of cash settlement on even a health insurance policy. Wherever there’s a possibility of naming a beneficiary, make sure they fill that out, because if they leave it blank or put down estate, it’s going to end up going through probate and the courts will be making the decisions; and even if you’re not young adults, if you have a domestic partner, if you have a spouse, it’s amazing how many times we come across situations where people have not named beneficiaries and just assumed things would be taken care of, so if you’re not sure where to start, talk to your insurance or financial professional. Many times, they’ll have had many working relationships with different attorneys and CPAs and might be able to steer you in the right direction if you don’t have a working relationship with an estate planning attorney; or go to your estate planning attorney and get these things done; but one thing we think is important is when you do these things, you should be communicating with all the members of your team. You’ve heard us talk about this many times before, having the CPA, having the investment or insurance professional and the attorney, all talking together and making sure one’s aware of the what the other one’s doing will allow you to have a coordinated plan where everything you’re putting together is going in the same direction. It’ll make a lot of sense; and finally, if you already have these documents in place, if it’s been a few years since you looked at them, dust them off, have them reviewed, make sure they’re current. There are consistently changes that happen from year to year, and just make sure that you’re up to date.
Speaking from personal experience, do not procrastinate. I can’t begin to tell you what a load off your shoulders it is and what peace of mind it gives you to have a well thought out plan put into place and kept current; so don’t delay, get it done today.
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