Peter Myers' Blog

Winehouse's Divorce Motivated Proper Estate Planning

It appears that Amy Winehouse actually had a working, current estate plan.  According to this US News report, it was Britain's default laws that favor ex-spouses that motivated her and her lawyers to actually do her planning.  Her ex-spouse is apprently in prison.  That may be evidence of something, although I am not the guy with the details on him.

Just a reminder to re-do your planning after the divorce.  Make sure you comply with the provisions of your Marital Settlement Agreement ("MSA") which often requires, for example, that you maintain life insurance for the benefit of your minor children for a period of time.  Ideally, you come to me (or someone like me) before you negotiate the terms of the MSA.  You can build language into your MSA that specifies exactly what you need to do - for example, you can say your ex-spouse serves as a co-trustee with your siblings (if you trust them all) over the kids' insurance trust.  Or you can say your ex gets the firat $X (the cash immediately needed to deal with your loss - which is often around $100K-$200K for a working professional parent), and the balance goes into a trust for your kids.  You can set out the beneficiary designations of retirement accounts, and integrate the whole agreement into your shareholder agreements and other business continuity documents.

If Amy, of all people, can do it, then you sure as hell can.

A Warm Wind At the Backs of Some, Generated Off the Backs of Others

Yesterday, I learned in this Mother Jones article that workers have increased their contribution to government revenue disproportionately since 1980.  In other words, payroll tax (paid by workers) is a larger portion of government revenue than it used to be.  That's a macroeconomic analysis, which still doesn't answer the question of whether rich people are being treated "unfairly" by the current tax system.

So to elaborate a little, let's take two people who make exactly the same amount:  $100,000 in taxable income (after the standard deduction - let's not get complicated).  "Worker Taxpayer" earns her money by working (getting compensation by way of a W2) and "Investor Taxpayer" earns her money from dividends in a $4 million stock portfolio she holds (its about 2.5% in yield - about right).  Let's say they are both unmarried.  Investor taxpayer does not work and has no compensation income.  They are otherwise "equal," right? (except that investor taxpayer fits the description of those who vituperate about lazy welfare recipients who sit on the couch all day and watch TV, right?)  I'll keep the rhetoric down, because the facts are outrageous enough to speak for themselves.

Worker taxpayer will pay $7650 in payroll tax, plus $21,617 in income tax (2011 brackets), for a total tax burden of $29,267. 

Let's look at investor taxpayer.  You would think they would be taxed at the same rate as worker, right?  Wrong.  Because investor taxpayer receives all of her income from qualified dividends, they get a "special" tax treatment.  Bear with me, we're almost done.  Generally, the maximum tax rate for qualified dividends is 15%, BUT HERE it is actually 0% because investor's other income (remember she doesn't work) is taxed at the 10% or 15% rate. 

To refresh:  worker making $100K pays about $30K in tax.  Investor making $100K in qualified dividends pays $0 - no - tax.  Huh?  Yup.  

What this means is that rich people - who are incented by tax policy to remain on their couches (too much earned income would otherwise trip them into the 15% dividend tax bracket) - are now getting off their couches and going to tea-party rallies to maintain this unfair redistribution of wealth in their favor.  For if they work, they risk having their dividends taxed at 15% (still half of what, say, worker taxpayer paid in taxes, but confiscatory in their view).  Perverse incentive?  Yup.  Does it sound like the rhetoric of the right wingers about unemployed persons and welfare recipients laying on couches and not incented to work?  Hm. . . .

Now let's say you didn't work, or you worked very little, and instead you made all of your income from qualified dividends.  The "magic number" (the income threshold you need to stay under to avoid paying any tax on your dividend income) is $69,000 (married), $34,500 (single or married filing separately) or $46,250 (head of household).  Thus, you can actually work a little, and you have all this extra time - to attend rallies, political functions, cook your food, clean your house or do other things that people who actually earn their income from working have to: (a) pay someone else to do (which is not deductible), (b) do in the evenings or on weekends, or (c) simply let it slide.

I will now illustrate how it is almost impossible for someone who is already rich to not get richer, in fact much richer.  Both working taxpayer and investor taxpayer have identical lifestyles and thus spend the exact same amount of money (not likely, given that worker has to pay for commuting expenses - again NOT deductible).  Let's assume that's $70,000 per year.  We know that worker taxpayer already paid $30K in tax, so let's see what they have left to save:  uh, nothing.  Investor taxpayer paid no tax, so what do they have left over to save: $30K.  Exactly the same amount that worker taxpayer paid in taxes.

The rationale for the tax policy you see illustrated above is George W. Bush's.  In 2003 he said that "double taxation is bad for our economy and falls especially hard on retired people." He also argued that while "it's fair to tax a company's profits, it's not fair to double-tax by taxing the shareholder on the same profits."

Its odd to me that the above disparate treatment of otherwise similarly-situated earners is defended on the basis of "fairness."  Is this 1984?  And I also wonder whether there is a joke in there somewhere - i.e., given that a zero-percent tax bracket would apply to someone who made all of their money from dividends and capital gains, why wouldn't they retire?  I sure as hell would.  Working too much would bump all of their dividend income into the 15% tax bracket.  Volunteering for the tea-party rally, or perhaps some other Republican cause, would be a far better use of one's time.

Class Warfare in Tax Policy

I agree with Republicans on many things, one of which is that tax policy should avoid re-distribution of wealth.  However, the conclusion this policy impels is not what most wealthy Republicans would like. 

Have you ever noticed when you are riding a bicycle that you cannot tell when the wind is at your back?  You just go so much faster and you think it all has to do with you - your pedaling, your skill, your endurance.  So it goes with tax policy and wealthy Americans.

Let's take 1980 as a benchmark for this principle.  Mind you, we could go back to 1950 and my premise would still carry weight.  It is generally accepted that the payroll tax is "regressive" - meaning that it taxes working people at higher rates than either the independently wealthy or high-income earners (say, lawyers and doctors, just to address those who would say I have a bias).  This is because you do not owe payroll tax on income above a certain threshhold - around $100K for our purposes (it was indexed a while back around $92K).  So if I make $200K, the first $100K is payroll-taxed at 7.65%, and the balance above that - no payroll tax.

Its bad enough that we have a regressive tax system with the payroll tax - its one of a dozen examples I could give (cigarette taxes, alcohol taxes and sales taxes all disproportionately fall on the working class and poor).  Basically, once you make more than about $500K per year, a trained monkey cannot help but get extraordinarily rich, unless said monkey spends incredibly wildly.  That a lot of bananas.  So you would think with the growth in the economy since 1980, the percentage of government receipts (tax revenues) attributable to the payroll tax would be relatively constant?  Um, no.

Because, since 1980, the tax policy has been redistributing wealth (towards the more affluent, by the way), the payroll tax as a percentage of government revenues has actually risen.  Mother Jones has put together some fairly nice charts and graphs for those who prefer picture books to novels (for example, me).  In this article, we see that the payroll tax used to account for about 30% of government revenues (in 1980) and now accounts for 42%, while the income tax used to account for about 47% and now accounts for about 43%.  The corporate tax has fallen off a cliff, but because I don't share the liberal orthodoxy of taking corporations (except with respect to retained earnings - mine is a difficult position to put into a 5-second sound bite, so that's for another day), I am not going to complain that "big corporations" don't pay enough tax.  Not the complaint of this radical moderate.

My complaint is the dis-ingenuity of the rich folks who are funding the tea party "debate" (not really a debate, but more like a one-sided shouting of superficially appealing policies shrouded in this historical idea that the Bostonians' revolt against the British Parliament's Stamp Act in the 1770's somehow has something to do with rich people paying too much tax today - its not historically accurate, but that is not relevant to these people).  They contend that any effort to "raise taxes" (the sound bite used to describe the effort to restore tax policy to pre-Bush-tax-cut levels) amounts to "class warfare" and an effort to "redistribute wealth."  Yet, as the Inequality article shows, the tax policy for the past 30 years has actually performed quite well at redistributing wealth - to the highest 1% of the wealthiest Americans.

If anyone should be throwing tea into the harbor, it ought to be the 90% of working-class Americans who are shouldering the increased tax burden since 1980.  But, in this Orwellian world where "class-warfare" cries create some sort of "wedge issue" that political advisers have cynically calculated gets them that extra vote, the connotations of redistribution of wealth are instead socialist and egalitarian (rather than classist and aristocratic, which has been the historical truth since 1980).  This Kampf of Kochs is remarkably good at obfuscation. 

Judge Harpo Myers

I thought about running for judge today. I would have to run - the governor wouldn't likely appoint me (although we share a lot of similar thinking). So in my fantasy world of "Judge Myers," I came up with these ideas:
1. We only use court call. It is a complete waste of time for attorneys and litigants to be present in court. It costs money for litigants and lawyers to get to court, to park, and to sit around. It costs the government money to staff security, Marshalls, have all these places for people to sit and pretend to be comfortable. There is nothing comfortable about sitting in court. Commissioner Kaplan reminded me of this when she admonished me not to (silently) view my email while sitting in the back row of the gallery, behind the water cooler (my favorite spot). Huh? Not efficient. Especially when you cut my fees for not being efficient. Its efficient to multi-task. You can do that on court call.
So I would require court call for everybody unless some statute required physical presence. Court call also has the benefit of paying for itself - it charges the lawyers a fee which it shares with the court. The lawyers are happy because they save valuable time in not having to commute, park, and pretend to be comfortable while they are decidedly polite in NOT viewing their EASILY and QUIETLY accessible email on their cellphones.
2. Every courtroom should have a clown-type horn. One of those old Harpo Marx horns, where you squeeze a red rubber ball and it makes a goofball sound. Instead of interrupting the lawyers or clients, the judge could just squeeze the red rubber ball, and this big HONK would tell everyone to knock it off - they are irritating the judge. It would not show up on the transcript, so there would be no "record" that the judge cut someone off. It would be the judges' version of "nightstick justice." "Appeal this, counsel . . . HONK!"
3. Court personnel, including judges, would be subject to the same sanctions, or reductions in pay, as the litigants and their counsel for screwing up. This is the pet peeve of all probate lawyers. There is no mutuality of remedy when the examiners or the court messes up. If a case got reversed on appeal, the Superior Court would forfeit its filing fee back to the party who incurred the fee. This might encourage more careful thinking in jurisprudence, and would definitely help with ridiculous points (and unnecessary continuances) occasionally made by examiners.
4. Hearings would be set every 15 minutes, or at least every 30 minutes. You would not have to sit through much of a calendar to be heard. It wastes a lot of time and money to have 40 lawyers sitting around listening to a couple siblings squabble over who got the better pacifier. After the 20th time, its not funny any more.
5. My judge cellphone would be available to all parties at all times, with the caveat that it would be a 900 number. If you want to get a ruling on an objection in the middle of a deposition, go ahead and give me a call. But it will cost $10 per minute (cheap relative to the cost of litigating the objection otherwise), and the revenue would go to the court's general fund. The fee would go up to $100 per minute for any calls made after 8 p.m. and before 9 a.m. Thus, you could depose someone in the middle of the night - that's your decision, counsel - but if you want to wake me up to fight about the objection, that will be $6,000 per hour. And there is no guarantee I will be as sharp as I would be, say, at 9 a.m. I would probably insist on a small cut of the action for the inconvenience to me and the interruption to my beauty sleep.
6. Every law firm with at least 3 lawyers that regularly appeared in my department would have to send a paralegal into court once a month to assist with my department's research. They would need to work on other cases, not their firm's. They would get a sense of the importance of fair and balanced research. They would see what other firms are doing, and it would be a forced CLE. It would likely improve the quality of their own firm's filings with the court.
In honor of the tea party, I would create a new political party, the Coffee Party, and run on a platform of fast and efficient justice. We can do more with less. We have no choice. Peet's would be my official sponsor.

I love trial lawyers. Especially good plaintiff's lawyers. Like John O'Quinn, a Texas trial lawyer, who won literally billions of dollars for his clients, in difficult cases against gargantuan companies.

John was not immortal. He skidded off the highway and got himself killed earlier this year. And his common-law "wife" (not legally married, but they had the ceremony, the ring, and all sorts of oral promises to take care of her financially) didn't get to keep the cars he gave her.

In this Bloomberg article (http://www.bloomberg.com/news/2010-08-13/lawyer-s-lover-loses-his-corvettes-1936-mercedes-ann-woolner.html), author Ann Woolner reports that his wife and lover sought to keep the cars he gave her - to the point, apparently, of getting testimony of witnesses that the couple treated the cars as "hers" - alas, to no avail.

A note of sadness: his to-do list was found and he had scribbled "will change for D." - referring to Darla Lexington, John's "wife." He meant to leave her more than the $2 million life insurance policy. But the quote from John's Estate's lawyer says it all: "What's relevant in the eyes of the law is not what people say he was going to do, but rather what he actually did.”

Every now and then a client will send me an email saying "hey, if I die, make sure the cats are taken care of" [or whatever]. Reminder: that's great, but we really need to set it up the normal way if you want it to work. Yes, its a pain in the butt, but the alternative is a bigger pain the many butts of the many people whom we leave behind.

And finally: please drive the speed limit.

I'm setting up this year's annual trek to Los Angeles for the LA Triathlon. Let's do it!

If interested in doing a relay, I will assemble a "Myers Urbatsch Team." I am going to do the individual, Olympic-distance. I have had a number of friends say they wanted to do one leg only. This is your chance to weigh in on your preferred leg. http://www.latriathlon.com/index.html

Tough weekend to be a Giants/Red Sox fan. Bad enough they had to play each other and one had to lose. Also bad enough the Yankees played the Dodgers and one of them had to win (I found myself rooting for the Yankees, if you can imagine that). Then, the Red Sox take the series 2-1 (I would have preferred SF taking the series) and - Yikes! - the Red Sox lose Pedroia, Martinez and Buchholz! FMySportsLife. A swim and a bike ride brought me back from the edge of the Bridge, and I am now chilling with some soda water and light music on the stereo. Breathe, fans, breathe. It will be OK.

Gray Areas

Getting involved in elder law can be perilous. 

I have finally concluded a case made my blood curdle.  You think you are doing the right thing, and then, blam!  Proving once again that no good deed goes unpunished.

It all started last June.  I represented an Italian nephew (he happened to be a professor) that was appointed a successor co-trustee of his Great-Aunt's trust.  Great Aunt - San Mateo; Nephew - Roma.  What fool set up that estate plan, you ask?  Let's just call him the successor co-trustee (!) and the Great Aunt's own lawyer.  Yup, Mr. Elmer Fool, Esq. 

Little did I know that I would get hauled into a problem where Elmer was trying to have his own client, the Great Aunt, declared incapacitated so he could take over as co-trustee.  Nephew did not want to go along with the plan.  So Baker & McKenzie figures 'Myers can handle it,' so they refer it to me.  How is it that these iron filings constantly end up stuck to my sympathy magnet?  Since the nephew lived in Rome, I'm blaming the Pope.

Step #1:  attend the hearing.  There's Elmer, arguing a private professional Trueheart should step in.  Normally a good idea, but Elmer won't relinquish his role as successor co-trustee or as lawyer for the Great Aunt, taking the position she is incapacitated, and no other lawyer is allowed to meet with her to defend her, because - after all - she is a represented party.  So Elmer and Trueheart are appointed temporary co-trustees.  I convince the Court to allow me to meet Great Aunt, and Court insists the Court Investigator be present and "run the meeting."  Fine, cool.

Court Investigator and I meet with Great Aunt.  She seems fine, with it, understands the proceedings, wants lawyer out of her life and wants my client in.  Doesn't know private fiduciary from Adam, doesn't want her in her life.  Meeting concludes, hopefully Investigator will get the report in and all will be righted.

Investigator goes on vacation.  No report filed.  Great Aunt starts calling me.  Great Aunt has Nephew call me, and then has neighbor call me: "please come over.  I need to speak with you."  I explain to nephew and neighbor we need an independent lawyer, not me, to meet with her to avoid appearance of conflict of interest.  All agree, and I am to show up on a weekend day (since I am busy during the week) with independent lawyer to meet with Great Aunt.

I check the WealthCounsel directory, find a lawyer a few miles away, and beg her to meet me at the house on a Saturday.  She agrees.  Perhaps the world will be righted and everyone can have their own lawyer again. 

Nothing remarkable about the meeting - she meets, I use the opportunity to interview the neighbor and the caregiver.  Before I leave, I chat with the Great Aunt for minute, with the lawyer present, and all is well.

Elmer has a secret grapevine to the home.  Caregiver is in Elmer's pocket.  She calls Elmer, who then proceeds into court with finger waving, accusing me of all manner of ill will.  Magically, Great Aunt is drugged the afternoon of the hearing (alleged UTI) and cannot attend.  Judge Impetuous decides I have "crossed the line" and "engaged in elder abuse" by trying to get Great Aunt her own lawyer.  Elmer demands an apology from me, and Great Aunt's world is again in turmoil.  Judge Impetuous demands new lawyer return her fee, and consign Great Aunt to the court's special "panel" of court-annointed attorneys.

The Investigator returns from vacation weeks later, and several weeks later submits his report, then several weeks later the attorney is appointed, and several weeks later the attorney asks me to introduce him to his new client.  OK, fine.  I again travel to San Mateo to introduce Great Aunt to an independent lawyer.  No mischief from caregiver this time.  But two months have passed and nothing but money has been spent.

In the meantime, Great Niece (who is a lawyer) arrives from Rome and the contours of a settlement are worked out with the private professional Trueheart and the Great Aunt. 

Great Nephew and I discuss disqualifying the judge, who has decided he and I have conspired to commit elder abuse against his Great Aunt by trying to get her a lawyer.  I file the motion, don't charge the client.

But wait!  Fiduciary Trueheart now decides she needs her own lawyer.  There aren't enough professionals on the payroll.  The whole process begins again, and tens of thousands of dollars in attorneys fees later, we end up exactly the same place we did at interim settlement.  Its the story of adding lawyers to cases.  Everybody's got a right to.  In bankruptcy and estate practice, everybody's got a right to spend someone else's money.

Scroll forward.  My client predeceases his Great Aunt.  Everybody petitions for their fees - Elmer, Fiduciary, fiduciary's lawyer, court-appointed lawyer and me.  Everybody else (but me) gets their fees approved by the Court.  My fees are determined to be "personal to" the now-deceased Great Nephew.  No fees for Peter. 

Elder law is tricky.  You can be mercenary.  There are ways to get paid.  Trueheart's lawyers filed a conservatorship petition, for example, and the successful filer can get their fees reimbursed.  I could attack everyone else's fee request, for example, and claim I create some benefit for the trust.  None of which I find very efficient (the conservatorship wasn't really necessary, since a trust existed), so I try to avoid it.  But this was one of those cases where you cannot do the right thing AND get paid at the same time.  If you practice elder law, get used to it.

Moral of the story:  when not in Rome, do not do what the Romans do. 

Serendipitous Justice

I had an interesting observation on Friday. I used to have a few financial advisors who referred me significant business - perhaps 5 to 6 clients per year each. They stopped referring after a few years because they found some guy who was "cheaper." (I am not sure what that means; its sort of like having your dog cut your hair because its cheaper than a barber.)

Friday I found out that the attorney to whom they are referring these clients is actually a licensed financial advisor. In other words, these financial advisors are actually referring their own clients - unknowingly - to one of their competitors!

I am grasping for the common analogy. Using your insolvent sibling's credit card only to find out later that you guaranteed the loan. Burning your Dad's clutch and then inheriting his car. Sending your kid to the inexpensive Kaiser psychiatrist who, unbeknownst to you, happens to also be your spouse's lover.

Serendipity often does justice better than any amount of intentionally directed ill-will. Karma, baby, karma.

The Ecuadorean Experience

I am just now wrapping up a visit to Ecuador, prompted by my daughter's idea, hatched this Spring, to spend a month in Spanish Immersion volunteering for an orphanage in Cuenca, Ecuador.  Having traveled alone to foreign lands of varied tongues in my own teen years, I wanted to witness the experience of her excitement.  Maybe it was motivated by paternal instinct; maybe it was motivated by some faint hope of reliving that wonder year in 1979.  Maybe both.

After saying our goodbyes a few hours after the above photo was taken (there are a lot of pictures of my extended arm in this batch), Ellen cabbing to the Panamerican Terminal for a 10-hour bus ride to Cuenca, I hired a driver to take me to Papagayo, about an hour south and towards the "Avenue of the Volcanoes" (a 200-mile stretch of active and inactive volcanoes in the Andes).  Amazingly, at the end of this 1 km bumpy dirt road, there was a lodge, complete with WiFi (although lacking in heat and sometimes hot water).  Spent the night there and headed to Cotopaxi the next day, the tallest active volcano in the world.

We hiked to the glacier (at 5020m, or 16,060 ft), had lunch, and took mountain bikes 14 km down the bumpy dirt road to the lake below. Note my riding companion, Jeremy (architect from San Francisco), had large fingers.

At the glacier.
At the bottom of the volcano.
Wild horses (escaped from ranches years ago and bred in the wild)

Next day, after another night in the lodge, our little group (now up to 20, from 8 the day before) went to Saquisili (a local Andean village) and then on to the Quilatoa volcano, the crater of which formed a lake.  We hiked down the inside of the crater (around 3800 m, perhaps 11,000 feet) to the lake (maybe 3300 m), took photos of some Alpacas, and rode mules back out of the crater.
The live animal market at Saquisili.  That large hog was available for the taking for US$180.  Prolly wouldn't fit in the overhead bin.
Hiking down the inside of the crater. 
At the bottom, getting some local help with my mule.
The Alpacas.