Pablo’s Abstract Estate Planning

Picture of Picasso's Femme Assise

Pablo Picasso (Picasso) was world famous painter, sculptor, printmaker, ceramicist, stage designer, poet, and playwright. His works are famous for many things but you may be more prone to think of his abstract art when you hear of his name. Some of Pablo’s paintings have been sold for more than $100 million dollars. Pablo produced an estimated 13,500 paintings alone and when coupled with his other creations the total number of his artistic contributions would be over 145,000. Picasso (Picasso) died on April 8th 1973 while entertaining guests at the age of 91.

Pablo is revered for his ability to see the world differently and translate that perception to the canvas, but his abstract views should not have been allowed in estate planning. His estate boasted a large fortune of artwork, homes, gold, investments and other assets estimated to be between $100 and $260 million dollars. Although Picasso lived a long and productive life, he never got around to doing any sort of estate planning.

Legal battles ensued when it came time to settle his estate. The estimated cost to the estate because of the litigation among the heirs was $30 million. The feuding did not stop at the distribution, but even over 25 years after Pablo’s death there were still legal battles to determine the rights to sell Pablo Picasso’s name for merchandizing rights.

Picassos art

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Pablo had children with three different women. If that wasn’t a warning sign enough for the need of estate planning, certainly his vast fortune was reason enough. Maybe he though artists shouldn’t have to be worried about the mundane and technical aspects of life, a $30 million transition fee together with all the fighting among his heirs can serve as a warning of what not to do.

Estate Planning does not have to be complicated or even efficient (how avoid the most taxes) if you are more worried about adverse effects (fighting heirs, enabling a life of self-indulgency) of inheriting wealth. Estate Planning does need to be done though, or you might well see 1/3 of the value of your estate eaten up in the transition.

Posted in Estate Planning, Probate Tagged with: , , , , , , , ,

It Sounds Good, But is it Enforceable?

Picture of Contract with words, "Sounds good But is it enforceable"

The other day I was helping someone move. We arrived with the moving truck, and met the Landlord at the residence. The Landlord then proceeded to go over the terms of the lease along with the idiosyncrasies of the house. The soon-to-be tenant looked at the 5 page document and tried to listen as she went over some “key provisions”. She then showed him where to initial at the bottom of each page. It was late at night and we were both pretty tired from our prior activities and making the 3 + hour drive. She then moved on to the third page that had two items with blank spots ready to be filled in.

Cat on pillow

She stopped, and asked, “You don’t have any pets do you?”
“Nope”, said the tenant.
She then stated, “just because I want to (and proceeded to write $5,000 as the penalty for having a pet and for smoking in the house”.)

The $5k provision in case of smoking or pets was in essence a “liquidated damages” clause. Liquidated damages clauses are used in contracts to stipulate up front to damages because the actual calculation of damages would be difficult or an extreme burden to do.

At this point, I took notice. Was this even going to be enforceable? What if he decided to get a gold fish and she came through on an inspection? Could she walk out $5k richer? I didn’t say anything, and we unloaded. As I laid down to go to sleep at night I recalled the basic principles of contract law and the question kept going through my head, “Is it enforceable?”

Basic Principles in Contract Law

  1. Parties are free to negotiate for an agree to any lawful terms they want to.
  2. Remedies for contracts will usually go to restore the harmed party to a position as if the contract had been fully fulfilled, but not to enrich them.
  3. The court will only reform the contract if the contract is against public policy or is unconscionable (terms are egregious or patently unfair).

hand signing a contract

Parties should be able to negotiate for whatever they want. The remedy has to be tied to the harm someway or else contract law would be a sham. You would be asked to sign a 50 page agreement in 8 point font and somewhere hidden in the agreement would be some term that says if you breach you agree to pay $1,000,000. That is not how the system works. If it did work like that, then no one would sign contracts ever. This post is the result of me needing to be able to justify my gut feeling and verbalize the standard.

What is the law?

Picture of a gavel

According to Section 356 of the 2d. Restatement of Contracts, liquidated damages for a breach may be spelled out in the agreement but only to the extent that they are reasonable in relation to the loss anticipated or actual loss caused by the breach. Liquidated damages are only appropriate when it is difficult to prove the amount of damages.

So what does that mean? This means that if we were designating the penalty for a certain type of breach i.e. having a pet in the house when the lease says you can’t the remedy is only enforceable if it meets both of these requirements:

  1. The anticipated damage or actual damage is reasonable in light of the circumstances.
  2. The damage is difficult to ascertain/measure.

A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy. As stated above, if it were enforceable, contracts would get in the way of people doing business rather than help them. In the case of pets in an apartment lease, the damage caused by pets would be readily ascertainable. If there were a dog and the dog through is poor hygiene habits ruined the carpet and the drywall, the damages would be the cost of the replacement of the carpet and the drywall. If there is a fish, the fish did absolutely no damage, then there would be no damages recoverable under the contract for the fish. The landlord could decide that the tenant was in breach and evict the tenant, but the landlord couldn’t use the Court to enforce the $5k penalty.

Rules of Thumb

When you are considering damage provisions in contracts, you can go by these guidelines:

  1. You can’t affix a term that spells out the damages, if the damages are not difficult to calculate. If the breach caused damage, then the non-breaching party’s claim will be equal to the damage caused. There is no reason to stipulate to damages beforehand.
  2. If the damages are difficult to calculate, then the parties can agree to a compensation amount, but that amount has to be reasonable (not just justifiable) in light of the circumstances.

When a liquidated damages clause is appropriate.

Liquidated damages clauses are used in all types of contracts. Sometimes they are appropriate and enforceable and sometimes they are used for scare tactics. Here is an example of when a liquidated damages clause would actually make sense: if employee Doyle quits and violates his non-compete and non-disclosure agreements with his previous employer and shares proprietary information that has given his previous employer a distinct advantage in the market place and because of these violations, Doyle’s new employer starts gaining market share these damages would be extremely difficult to calculate. You would have to calculate the lost profits of Company A, the increased profits of Company B, the value of repeat customers, the probability of Company B discovering the unique information on its own, and the lost opportunity because of the lost profits of Company A. In this type of case, it would be appropriate and enforceable to stipulate to a measure of damages beforehand.

bags of money

Don’t be Intimidated by Unenforceable Large Numbers

The next time you see a liquidated damages clause that seems ridiculous, remember this article and see the clause for what it is; a scare tactic, and respond accordingly.

Posted in Business Law, Contracts, Negotiation Tagged with: , , , , , , , , , , ,

10 Languages of a Contract Part 2 of 2

Picture of man sitting on a contract

In the last segment of this series we talked about the following contract languages:

  1. Language of Agreement
  2. Language of Performance
  3. Language of Obligation
  4. Language of Discretion
  5. Language of Prohibition

This segment will cover the remaining languages of:

  1. Language of Policy
  2. Language of Declaration
  3. Language of Belief
  4. Language of Intention
  5. Language of Recommendation

The better your knowledge of the language contracts, the better you will be able to understand the specific provision that is operative to your situation. We will start with the Language of Policy.

Language of Policy

The Language of Policy does not deal directly with the what the parties expressly have to do or refrain from doing. Policy language deals more with customs or norms that must be upheld or observed throughout the contract relationship. There are two kinds of Policy language 1) those that state the rules governing a thing, event or circumstance, and 2) those rules that address the scope, meaning, or duration of the contract or provision.

To better understand the Language of policy, here is a quick example of poor policy language to better policy language:

Policy Language Examples

  1. The ordinances of the city of St. George govern all matters arising out of this agreement (best)
  2. The ordinances of the city of St. George will govern all matters …(good)
  3. The ordinances of the city of St. George shall govern all matters.. (worst)

You should never use “shall” when drafting policy language. Policy language does not serve to impose an obligation on the parties. You would use this “policy language when drafting items that are not mandatory. It is more to establish a common ground between the parties rather than control them. The next language is the language of Declaration.

The Language of Declaration

The Language of Declaration is used to affirm facts. Declaration language is used not only to show that a fact exists, but also that an individual party is witnessing and agreeing with the fact that is being asserted. This is similar to the language of performance but it is not accompanied by a “hereby”, “herein”, “therein”, or “thereby”. Please the example below:

Declaration Language Example

  • “Doyle Jones affirms that the equipment has been properly maintained” (language of declaration)
  • ”Jones hereby represents and warrants that the equipment has been properly maintained” (language of performance)
  • ”DJ, by the signing hereof, represents and acknowledges that he has properly maintained the equipment.” (language of performance)

Often times drafters use “represents and warrants” to introduce a fact. The words “represents” and “warrants” are terms of art. They hold a specific definition in legalese and can influence the remedy provided for by the contract. Products liability cases can turn on whether the warranty of merchantability has been breached. Thus when drafters use “warrants” interchangeably with “declares”, the issues can become problematic in determining the historical claim specific use of the word verses the contextual use of the word.

Language of Belief

The Language of Belief is a language used when the parties are unsure as to the factual accuracy of the some of the provisions stated within the contract. In the case where it can’t be determined for sure, or the parties don’t want to expend the research and effort required to verify what they think is true, or whether the factual determination cannot be determined until a future date, the appropriate language to use is the Language of Belief rather than the language of Policy as explained above. See below for an example:

Belief Language Examples

  • The parties believe that the legal description is the same legal description on record at the County Recorder’s office.
  • The legal description listed herein is the same as the legal description on record at the County Recorder’s office.

Language of Intention

There are some elements of a contract that parties are unable to decide by themselves. In cases where the Court or a third party will determine a provision in the contract, it is best to draft the intent of the parties so that the contract offers some bounds to an otherwise unbounded decision by a non-party. See examples of the language of Intent below:

Intention Language Examples

  • ”The Parties agree for the repairman have all necessary licenses to complete the work.” (good)
  • ”The repairman shall be deemed competent to complete the repair.” (not good)

Picture of two men arm wrestling over a contract

Language of Recommendation

The language of recommendation is often used in “adhesion contracts”. Adhesion contracts are contracts where one side has all the bargaining power or they have a superior position to that of the other party. Courts will often construe contracts against the party with the most power. In an attempt to avoid this, drafters have tried to point out or make conspicuous certain provisions that will substantially affect the rights of the weaker party. These tactics will sometimes take the form of recommendation language. See below for an example:

Recommendation Language Examples

  • Company encourages Employee to get outside counsel regarding this employment agreement, (good)
  • Company recommends that Employee consult with legal counsel about the consequences of early termination of employment by Company prior to signing this agreement. (better)

Now that we have discussed the 10 different languages of contracts, as a reader you should be able to identify when a certain type of language is being used. This in turn will help the reader to discern the duties and obligations imposed and in turn the issues the provisions were meant to address. Using the correct language for drafters benefit the drafter as well as the client and makes the outcome of a disputed contract more predictable or at least narrows the issues take up less resources. If you have any questions or comments about what type of language is being used in a contract you currently have sign up for a free consultation and let Wes Winsor Law help you.

Posted in Contracts Tagged with: , , , ,

Don’t Take Estate Planning Advice from Justice Burger

Picture of Justice Burger Swearing In President Gerald Ford.

Every now and again I come across surprising and amusing events in estate planning. I felt this one was worthy enough to share. The honored and revered Chief Justice Burger (1907-1995) who drafted and ruled on the famous cases such as Immigration and Naturalization Service v. Chadha (holding that Congress didn’t have veto power over Executive Actions of the President) and one of the few cases dealing with cruel and unusual punishment in the case of Solem v. Helm (holding that it was cruel and unusual punishment to impose life imprisonment for issuing a fraudulent check in the amount of $100). Even with all his jurisprudence and time on the bench, Justice Burger either failed to or purposely neglected to adequately plan for his estate. His will consisted of 3 lines:

  1. My executors will first pay all claims against my estate;
  2. The remainder of my estate will be distributed as follows: one-third to my daughter, Margaret Elizabeth Burger Rose and two-thirds to my son, Wade A. Burger;
  3. I designate and appoint as executors of this will, Wade A. Burger and J. Michael Luttig.

/s/ Warren E. Burger … [witnesses’ signatures]

Picture of Justice Burger's will

His Will did not specifically address how to handle personal property, (art, gun collections, jewelry, sentimental objects), nor did it speak to the posting of a bond for the executors. His will was about as bare bones as you can get. Not only did it cause the executors and children a lot of grief in the distribution, but it also made the whole affair public. For someone who knew the legal costs, public scrutiny, and unwanted attention that this sort of action would cause, Justice Burger’s actions surprise me. The cost to take the estate through Probate Court alone is reason enough to use a trust not to mention the burden you are leaving your heirs. Justice Burger’s story will hopefully serve as a reminder to all professionals not to forget to take care of business at home no matter how proficient you are at work.

Posted in Estate Planning Tagged with: , , , , , , ,

3 Advantages that Family Businesses Start with over Traditional Businesses

Picture of Father and Son

Family businesses can provide many benefits to the family as well as society. Many people preach that mixing family and business is a sure recipe for disaster and estrangement, but it doesn’t have to be that way. Here are three reasons why creating a family business gives the business a competitive advantage over a traditional business.

A Family Business Understands Each Other Better

There are several natural advantages to starting and maintaining the family business. You come from the same culture. You have worked together in a variety of situations and under a variety of conditions. You know each other’s stress points. You know each other’s values. You understand each other’s point of view more easily because you can better empathize with their background. You have more in common in with them than just work and getting to know your employees is not hard to do. There is most likely a high level of trust already established with the other person, and both of you will be more willing to work through disagreements than if you did not have a prior relationship. Out of all the advantages listed, the ability to trust each other comes to the forefront.

Family Businesses Have Reduced Transaction Costs

What do non-competes, non-disclosures, and employment agreements all have in common? These contractual arrangements are created to deal with distrust between the parties. Trust is the number one reason otherwise compatible business interests fail to do business together. I probably get 3 calls a month from some internet marketing company wanting me to invest money with their firm so that they market my firm. The conversation usually takes 5 minutes of my time to get off the phone with them. It isn’t that I am not willing to pay someone for internet marketing, I just don’t trust them. It could be an otherwise mutually beneficial relationship, but because I don’t trust them we could both be missing out on revenues and opportunities. Clearly the higher risk (in many cases money) the higher the level of trust is needed to move forward. This applies in business deals, employment opportunities, job designations etc.

Employees in a Family Business Are More Easily United

Legacy families start to build the trust necessary to take risks together from the very beginning. Families that love and support each other naturally and organically develop a large degree of trust within the unit. The children know the strengths and weaknesses of each other as well as their parents. More importantly they are used to supporting each other and the relationships are strong enough to handle the contention, confrontation, correction, and embarrassment. After all they are family. One of the hardest things for a successful organization to do is to hire the “right people”. The “right people” are not necessarily the most qualified or most capable person, but is usually the most qualified and most capable person that fits within the Company’s dynamic.

Each member of the family fits within the family dynamic. They have had years and years of experience together and there is a consistency there that can be relied on. Louis Lamour is an author that leans heavily on this idea of core values in his books about the Sackets. The Sackets were family groups that shared a common ancestry, but one of the several core values shared by all the groups were to always help another Sacket if they were in trouble. The books depict many stories where one Sacket sent the call for help and the family would respond no matter the cost to their selves. It didn’t matter if it was driving several hundred head of cattle from Texas to Alaska, family feuds, or leaving family and work, the family always came.

There is strength within the culture. Having a family business where the other person’s culture, background, paradigms, and expectations are similar to everyone else’s is giant step forward as long as the culture is conducive to success. Finding the right person becomes less about who to hire and more about what skills do they need to learn. If you have the right people and you just need to focus on training, then many of the H.R. problems never surface.

There are many factors to consider when deciding whether to create/maintain a family business. Although, there are some pitfalls, such as ruined relationships, nepotism, and entitlement, there are also real advantages as well. Family employees are typically more loyal, work harder, and care more about the success of the business than non-family employees. The common culture and trust within the family can be leveraged to reduce transaction costs, and build up the business brand and reputation. Many family enterprises enjoy these competitive advantages over their competition.

Posted in Business Law, Estate Planning Tagged with: , , , , , , , , ,

The 10 Languages of a Contract pt. 1

Picture of  contract with pen

Ever wonder why contracts are so hard to read through?

A careful reader of a contract will note that there are seven different languages used. No, I am not talking about that fancy Latin that attorneys like to through in their explanations, but I am talking about the different types of English voice and style combinations that are used in different parts of the contract. One reason “legalese” is so hard to read through, is that contracts will typically use a different voice and style for each part of the contract. Ok, well attorneys that use 4 words when they could have used one don’t help either. Contracts are not written like books or even essays where they will have a certain flow to the document, rather they are written to be choppy and unambiguous. The next time you are reading through a contract look for the following languages and it will help you to understand the contract better. The first five of these languages will be explained briefly within this article.

Languages Used

  1. Language of Agreement
  2. Language of Performance
  3. Language of Obligation
  4. Language of Discretion
  5. Language of Prohibition
  6. Language of Policy
  7. Language of Declaration
  8. Language of Belief
  9. Language of Intention
  10. Language of Recommendation

Language of Agreement

The Language of Agreement is not typically used very much in a contract, but it is usually used at least once. Agreement Language can be found in the beginning of most agreements. A typical phrase using this language would look something like, “Wherefore the parties agree to the following terms:”. The use of this Agreement Language makes all other uses such as, “as the parties may agree” or “as agreed upon by the parties” or even phrases starting out with the “The parties agree that…” redundant. If drafters adhered to this style, the contract length might be reduced by 10%.

Language of Performance

The Language of performance will commonly use the present tense. The Language of will also describe what is effected by the signing of the agreement. Examples of these phrases include, “ABC Company hereby purchases all of shares outstanding from John Doe”, “Jane Doe hereby promises to limit the use of the property to gardening”, and “In this agreement Sampleton is not assuming any responsibility for the personal belongings of Customer”. Language of performance should be in the present tense and also refers to effect of placing the signature.

Language of Obligation

The Language of obligation is used to describe the duties imposed by the contract. This Language is typified by the use of the word(s), “shall”, “must”, and “has a duty to”. The clauses that contain this Language are the meat of the contract or the provisions that will make a party act or refrain from acting.

Language of Discretion

The Language of discretion is used to give describes the options available for a party to choose. Not all future events are certain and depending on the circumstances a party may choose one option over another. Examples of this language will appear in phrases such as “has discretion to”, “is allowed to”, or “may”. These phrases are best when used in the active voice (John may choose vs. the choice may be made by John) because the passive voice often requires more verbiage and is less clear.

Language of Prohibition

The Language of Prohibition is not the language used to pass the 18th amendment, it is language used to specify what a party shall not do. Prohibition Language is used a great deal in non-compete and non-disclosure documents. Examples of prohibition language include: “John Doe shall not disclose Company account information”, “party must not induce another to buy shares on party’s behalf”, and “neither party shall”. The active voice should is normally used to avoid ambiguity and wordiness.

Why Contract Languages Matter

Skilled drafters will use only one type of language at a time. This practice will make sure that words are not given double meanings and maintain a consistent style throughout the document. When you are evaluating an attorney or a drafter, look for the use of the Contract Languages. Consistency and clarity within the documents along with a drafter being able to explain the style used will give the client an idea of Drafter’s skill level.

Part 2 of The 10 Languages of a Contract will cover the Languages of Policy, Declaration, Belief, Intention and Recommendation.

The content of this article is based off of Kenneth A. Adams’ A Manual of Style for Contract Drafting 3rd Edition

If you are having trouble understanding a specific contract please schedule a consultation today.

Posted in Contracts

How to Engage Children in Charitable Giving

Parent and Child sitting at Table Talking

The intent of this article is to give the reader some ideas on how to teach generosity, civic engagement, and financial responsibility. Parents often struggle with the paradox of teaching their children to be savvy with their money while at the same time teaching them to be generous. Estate Planning starts years before the first will or trust is drafted. It starts with the attitudes, activities, family practices and ideals are established within a family

A Child’s Paradox of Gifting Money

It has been my experience that children slowly learn the true value of money. It is a hard concept to grasp. There are all different forms of money. Why is the small dime worth more than the larger nickel? Why is green paper worth more than a coin. Why do several one dollar bills value less than a $5 bill? While math skills are important in this area, young children simply do not have the purchasing experience to know that it is not the actual money that is intrinsically valuable, but you can purchase with it that matters.

For this reason, parents teach children not to “waste” their money on candy or cheap toys, but to save it for purchases that will have longer benefit. Parents also teach their children to be careful with it. Don’t leave it lying around, and don’t hand it out to friends like you are doling out drawing paper. Money is different, children should always ask before they are allowed to access it or spend it. Parental attitudes and teachings towards money often have a side-effect of a instilling in their children a “hoarding” mentality with regards to money. Because of this conditioning, children can have a hard time learning to give. They have been taught to save it and be careful with it. When they are encouraged to share it, there is no wonder why they can have some resistance to it. When children begin to learn the purchasing power of money they can start to appreciate charitable giving.

Let Them See You Give

Children are like a sponge. Everything they see you do and hear you say shapes their paradigms and attitudes towards specific behavior or practices. One reason why a generous parent may fail to pass on their generous attitude towards their children is that children may not have an opportunity to witness the parent’s donation activities. In many instances, individuals find the greatest satisfaction when they are able to gift in private. Mathew 6:3 states, “let not your left hand no what your right hand doeth”. Many parents do not feel comfortable letting their children know about how much and where they put their money. The practice of secrecy in giving certainly has its place, but the benefits of secrecy are not lost by allowing your children to participate with you. When Parents allow and make accessible the witnessing of their charitable giving, children will view it as a normal activity. They will see that it is a normal part of life and be more accepting of the ideal.

Teach Responsible Giving

There are thousands of charities and causes that will accept donations from an eager giver, but no parent opens their pocketbook for every one of those solicitors. We are bombarded by solicitations, at the counters of grocery stores, through phone calls, in person solicitations at our homes, and the ever present request in our children’s backpacks.

Here is what Lee Brower advises, when solicitors call or come to your door.

[when someone solicits contributions respond with the following] Thank you for thinking of us! We have a family organization that reviews alternative opportunities that are presented to us. Be very happy to evaluate yours. Would you be willing to send us annual report so we as a family can evaluate it for next year’s contribution budget?

If your goals is making an impact, where to donate can be as important how much to donate. Teaching your children how to select where to donate is a gift that will serve your children for their lifetimes. In order to teach responsible giving (by this I mean knowing who will be using your gift) you need to have a system. Learning about a charity, and being able to evaluate their financial sheets something your family can do together. An example of the value of responsible giving is given by Lee Brower in his book, The Brower Quadrant:

My daughter Natalie felt a strong calling to contribute to an organization that protected animals. Instead of the family instantaneously writing a check to one such organization, Natalie learned how to read the balance sheets and financial statements of the group. She discovered, to her dismay, that a shockingly small percentage of the money they raised actually went for the treatment of animals, and that the organization For itself a very large percentage for salary, benefits and overhead. Natalie was stunned by the manner in which the funds were distributed, and she found other organizations that gave more of the money to animals… And less to humans!

All non-profits will have an annual report with these financial statements. If they are serious then they will have no problem sending that information to you. Whether you are donating to a local hospitalized victim or to a national charity, make sure your money goes where you want it to and impacts what you want it to impact. Not all causes will be set up for this and in fact if you were to only give to those organizations that were you would miss out on the benefits of spontaneous gifting.

Spontaneous Gifting

Have you ever witnessed spontaneous gifting? It is a social phenomenon for every party who witnesses it. You have probably at least heard of it if not yet witnessed it. Some examples of include paying for a strangers meal at a restaurant or the car behind you in the drive through. If that has ever happened to you I am sure that you remember it. Even if you were a bystander such as the server or the person at the register, I am positive that it left and impression. The beauty of spontaneous gifting is that, it brings a charitable feeling to everyone involved. The next time you do your budget set aside some money to pay for a stranger’s meal. Have your children help you pick the person and make sure to leave before they discover their benefactor. You will be surprised how much fun you and your children will have.

Children will learn best when the Parent explains not only the motive for their donation, but also how to make sure that the intended recipient actually gets the help given.

Benefits of Charitable Giving

Parents want their children to have a healthy and proper perspective of the role of money in life. A critical part of that education is learned by willfully and routinely giving to those who are less fortunate. Repeated and thoughtful charitable giving is one of the best ways I know of to fight the feeling of scarcity, hoarding, and entitlement. Children who feel entitled spend far too much time thinking about how to enrich themselves and far too little time thinking about others. It is hard to focus on your own personal needs when you concerned with the welfare of others.

In my practice I have seen first-hand how children whose parents regularly made charitable donations have a respect for the donations given have no feelings of entitlement towards their parents’ estate. I have even seen siblings disclaim their inheritance in favor of charitable causes because of the example from their parents. Quarreling and bickering about who should have received the “gun collection” or “jewelry” will be minimized. Generosity can run in the family, but it won’t get there without consistent teaching and participation by all family members.

Start Your Estate Planning Now, when your Children Are Young

Part of your Estate Plan should include the day to day work of educating and training your children to be self-sufficient, successful, and contributing members of society. Incentivized trusts can aid in this endeavor, but even a properly incentivized gift will not be as effective as an entire childhood replete with experience and parental leadership.

Posted in Estate Planning Tagged with: , , , , , , , , , ,

“Reasonable Efforts”? As Defined by whom?

“REASONABLE EFFORTS” AS DEFINED BY WHOM-

Parties to a contract will often use the term “Reasonable Efforts” in contracts where the person doesn’t want to take on strict liability for non-performance to make sure something gets done, but has the intention in complying as long as something out of his/her control doesn’t happen.

For example in a lease agreement the Landlord agree to the following term:
“…Landlord will make reasonable efforts to fill the vacancy so as to mitigate damages if Tenant breaches said lease..”

In this instance Landlord is stating that he/she will make reasonable efforts to fill the empty rental so that the breaching tenant is not responsible for the remaining lease payments. The problem is that Tenant and Landlord will most likely have differing ideas as to what this “reasonable efforts” means especially if the vacancy isn’t filled before long.

The Core Definition of Reasonable Efforts is:

“means, with respect to give an obligation, the efforts that a reasonable person in [the promisor’s] position would use to comply with that obligation as promptly as possible.”1

The core definition is a little less vague, but not by much. “Reasonable Efforts” clauses should thus be further defined such that the group that is being compared is identified or even so that the customary practice of industry standard is identified. Rendering the above definition to look something like,

“means, with respect to a given obligation, the efforts that a reasonable person in the property management industry would use to comply with that obligation as promptly as possible [or within the normal time frame that they would comply with that obligation].”

The whole purpose of using a “reasonable efforts” provision is to make sure that the person with the obligation does not have to take measures that are not in proportion to the good he is receiving for taking those efforts. In order to achieve that limited obligation, the promisor can include some “carve-outs” which would exclude specific actions that the promisor will not take. These “carve-outs” should be very specific such as

  • spending more than $100
  • delaying or interrupting current business to comply with efforts
  • taking any action that would violate a law/ordinance
  • changing the business model or practice to accommodate compliance

Another way is to include efforts that shall be taken rather than list those that will not be taken. These types of actions might look like:

  • posting vacancy at office
  • posting vacancy on website and/or public posting forum ie Craigslist
  • putting an ad in the local newspaper

On its face, “reasonable efforts” seems to be a good phrase that captures the idea that the promisor won’t hinder or sit on an obligation, but an effective use of the “reasonable efforts” term should be further defined to eliminate ambiguity. The ambiguity is exacerbated in the eyes of the promise when he/she is having suffer a negative consequence of the promisor’s failure to comply.

1 Kenneth A. Adams, A Manual of Style for Contract Drafting 169 (2013).
Posted in Contracts Tagged with: , , , ,

A Not So Obvious Estate Planning Mistake

working at desk

       You just got done signing estate plan papers with your attorney, and he summarizes everything you have just done,

“Today you completed your Estate Plan.  You have a pour over will that will act like a big broom and sweep all personal property into your Trust when you pass away if it isn’t already titled in the name of the trust.

 You have also created a revocable living trust where you can control all of your property as you are the initial trustee and when you and your husband die, the assets within the trust will be     distributed evenly among your children.

You have also named your responsible son, to hold your Springing Power of Attorney knowing that if you and your wife became incapacitated he would be able to step in and make sure the rental properties were being taken care of and make sure all of your financial needs are met.  You have also appointed him to be the successor trustee to manage the distribution of the estate.

In addition to this, you have named your thoughtful daughter to be your agent for medical decision purposes. You have also instructed her as well as the rest of the family how you would like to be treated if you can no longer speak for yourself.

He says I would like to commend you in your preparation as well because you have even prearranged your funeral expenses and program.  Your children couldn’t have asked for an easier more thought out transition of your assets.  You must really care for them to have done all this work in advance.

         You arrive home, look at your wife, and smile.  Now you can relax knowing that your children will not have to deal with the probate process and the fighting that nearly split you and your siblings apart when your parents died.

Tragically, one week after the signing of the documents, you and your wife die while camping when a meteor hits your tent.

Your children find your binder with estate planning documents inside.  Your son takes the binder and approaches the banks where your accounts are held, the Realtor, and the DMV to begin transferring your assets as directed in the Trust.  Much to his surprise each of the institutions refuse to even talk with him about the assets.  Why?!?!?  It turns out that you and your wife neglected to fund the trust.  You did not actually convey title from yourselves to the Trust.  Your son now has to run all the assets through probate court in order to transfer the property into the trust in order to distribute them.  Wait a minute you think, what about that Pour-Over will?  That big broom ought to be worth something.  In fact, the Pour Over will is worth something.  The Will ensures that the property will make it into the Trust but it still has to go through probate.

Empty Trusts by themselves are useless.  Empty trusts coupled with a pour over will are useful and private but they still have to go through probate.  Funded Trusts are useful, private, and can be distributed very quickly.

DON’T NEGLECT TO FUND YOUR TRUST!!

If you wonder if you have any question as to whether your Trust has been funded please don’t leave it to chance.  Wes Winsor Law offers a free estate plan review.  Call now to set one up (435)669-9755 or schedule an appointment online here.

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What will really happen to my estate if I die without a will or a Trust?

Ok, for all of you out there who do not have an estate plan, I have put together a brief video explaining what will happen to your estate if you die without having first planned by getting a trust or a will.  Every state can be different on this, but there are a lot of similarities between them.  This explanation is current for Utah, and I make no representation if it is this way for other states.  If you die without a will or a trust in place, you will most likely have to go through probate, which I wouldn’t wish on anyone, but this video explains what will happen when it all shakes out of the court.  Comment and enjoy.

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