Where Are You From?

So where are you from? And if you own a residence in Florida and haven’t declared Florida residency yet, why haven’t you yet?!  In case you haven’t heard, living here can substantially decrease your tax bill. In contrast with forty-four (44) other states (including Washington, DC), Florida doesn’t impose a state income tax.

In 2017, fifteen states (CT, DE, DC, HI, IL, ME, MD, MA, MN, NJ, NY OR, RI, VT and WA) impose an estate tax, while six states (IA, KY, MD, NE, NJ and PA) levy an inheritance tax. One state even taxes gifts (CT)!

By making your Florida residence your legal homestead, not only can you shed many of the taxes discussed above, you may also enjoy a property tax break due to the “Save Our Homes” property assessment cap that serves to limit each county’s tax appraiser’s ability to increase the assessed value of your homestead for property tax purposes.

Especially if you own a residence both here and somewhere else – and your current state imposes income, estate, inheritance or gift taxes, why would you remain a legal resident of that other state? The answer isn’t necessarily that you don’t spend enough time here in Florida. In fact, Florida really doesn’t care how long you stay here, so long as you take the necessary actions to establish residency which typically includes registering as a voter, obtaining a drivers license, declaring Florida homestead and disassociating yourself from the residency of your former state.

And that’s where most of the issues arise. It’s really not so much whether you can establish Florida residency under Florida law – that’s the easy part – it’s really all about whether you can successfully disassociate yourself under the statutory provisions of the state from which you formerly legally resided.

One important note of which everyone should be aware – if you have “source income” that is earned in another state, then that income will likely continue to be taxed in that state regardless of your residence. A classic example of source income is that earned in your employment or business activity in that state. Another example would be rental income from real estate located in that state.

In contrast, you may save considerable tax sums from interest, dividend, capital gains, IRA, 401(k) and similar accounts should you successfully break from your former state of residence. Breaking from that state doesn’t necessarily mean that you should sell your residence there. You just need to be aware of the rules that each state has created to determine who they consider a resident for tax purposes.

New York, New Jersey and Pennsylvania are examples of states that consider an individual a resident if that person spends more than 183 days in the state. They may also consider where your spouse and minor children spend a considerable amount of time when deciding whether you fit under their taxing umbrella. Minnesota recently considered some of the most draconian residency laws that beg to be challenged in court.

By and large, the individual states don’t want to lose tax revenue – especially to their residents who own homes in tax-friendly Florida, and are looking for any and all means available to retain their citizens as state taxpayers.

I’m often asked how the states determine how many days you’re actually there. With today’s technology, there’s a number of means available. If a former resident has filed his last state income tax return, and the state decides to audit whether he has established residency elsewhere, it may decide to subpoena credit card, cell phone records or even flight receipts.

To remove yourself as a taxpayer from a northern state, you may want to consider a two step process. The first step is to take the necessary actions to become a resident of Florida, with the second step including taking steps to abandon your former legal residence. When becoming a Florida resident, in addition to declaring homestead, obtaining a voters registration and driver’s license, one should consider changing your address for passports, Medicare, Social Security and tax returns, as well as keeping a log of your travel.

When abandoning the old state residence, so long as you don’t have any “source income” in that state, filing a final state income tax return appropriately marked “FINAL” at the top of the return would be appropriate. If there is such a thing as a homestead declaration in your other state, you should renounce that declaration (which is also a Florida requirement). You would want to change your primary physician to Florida and change your legal documents, among other things.

If you decide to join those of us who agree that Florida is a great state to reside, you will have plenty of company. Florida recently overtook New York as the third largest state by population, behind only California and Texas. We welcome nearly 1,000 new residents every day.

So I ask again – if you own a residence here but are legally domiciled in a state that imposes its own income tax, estate tax, inheritance tax and/or gift tax in addition to what you pay the federal government, why aren’t you already one of us?

When an IRA Distribution Causes a Probate

Most clients who have revocable trusts believe that there won’t be a probate opened upon their passing. I’ve written in the past how your trust won’t avoid the probate process if all of the assets that would have otherwise been subject to probate haven’t been transferred into the trust. But there’s another issue for those that own retirement accounts that you need to know about.


“Wait a minute!” You might say. “IRAs have a beneficiary designation. Like a life insurance policy there shouldn’t be a probate!”

You’d be right about that.

Moreover, IRAs and similar accounts such as 401(k)s aren’t usually not transferred into your trust anyway. You don’t transfer those accounts into your trust during your lifetime because if you were to do so bad income tax consequences result. You’d have to withdraw the account balance that causes income recognition, and hence tax. You’d also lose the tax deferred growth that otherwise would have occurred had you left the amounts in the IRA.

What you may not realize, however, is that a traditional IRA could cause a probate if you are older than your “Required Beginning Date” (RBD) which is the April 1st following your 70½ birth date. As most of us know, once you have past your RBD you are required to take “Required Minimum Distributions” (RMD) from the IRA account.

So how could your RMD cause a probate?

Suppose the Ed is 82 years old and his RMD for 2017 is calculated to be $82,000. Ed has no other assets subject to probate because he has already funded all of his other accounts into his revocable living trust. Assume, however, that Ed dies before taking his RMD for this year.

The RMD amount ($82,000) is an asset of Ed’s estate that will be subject to probate. The IRA custodian (usually a bank or investment firm) won’t make a distribution to the IRA beneficiary of the RMD because it is his estate’s asset. The estate may have a different beneficiary than that designated on his IRA beneficiary form. Even if the beneficiaries are one and the same, the custodian will only make distribution to Ed’s estate.

Because the $82,000 RMD is above the threshold for a Summary Administration in Florida, Ed’s personal representative (executor) must open the probate administration to collect the $82,000.

There is nothing that the estate can do to avoid this outcome. But there was something that Ed could have done.

Ed could have withdrawn his RMD from his IRA account early in the year. Not one of us knows which will be our last day on this earth, so it’s really not Ed’s fault that the RMD for the year is a probate asset. Many of my clients, however, who realize this issue, choose to take their RMD distribution early in the year. Some do so on the first business day of the year for this very reason.

What about those that inherit the IRA account as the designated beneficiary? A spouse can roll over the account. Once the account is rolled over, then the spouse is treated as the account owner and her RMDs are based upon her lifetime. A spouse’s RMD in my example here would begin the year after Ed’s death. But that doesn’t change the probate issue on Ed’s last RMD.

Anyone other than a spouse who inherits the IRA would not be able to roll over the account. Instead, the IRA becomes an Inherited IRA account. The beneficiary will also have RMDs, but like a spouse who rolls over the IRA, the beneficiary’s RMDs begin in the year following Ed’s death. It’s important to note that with a non-spouse beneficiary, the RMDs begin whether or not the beneficiary is older than 70½.

A toddler who is an IRA beneficiary would have RMDs in the year following the account holder’s death.

Which brings up yet another important point. You should never name a minor or incompetent person as the beneficiary to an IRA. A custodian can’t make a distribution to a minor or incompetent. Instead, the IRA custodian will insist on a court-ordered guardianship account be opened in which to make the distribution. This causes a great deal of unnecessary expense.

If you nevertheless wish to make a minor or incompetent person as the beneficiary of an IRA account, you should instead establish a trust for that person. It’s important to note that for the beneficiary’s trust to qualify for the stretch out of the RMDs over that beneficiary’s lifetime some very specific requirements must be satisfied under IRS rules.

Here it’s always wise to visit with a competent estate planning attorney to ensure that the planning surrounding your IRA or 401(k) accounts is sound. Most people simply complete their beneficiary designations without much thought as to these issues.

But as you might see, proper planning is important.

Income Tax Deductions for Hurricane Related Casualty Losses

Many Florida residents, particularly those in Southwest Florida, suffered casualty losses from Hurricane Irma recently. My thoughts are with those families and individuals at this challenging time, as many of us recover from a loss of utilities, flooding, and damages to our homes and communities. Nevertheless, these tragic circumstances offer keen insight into what kinds of preparations to take care of this upcoming tax season.

IRS Form 4684 is used to report gains and losses from casualties and thefts. Casualty losses are losses from fire, theft, storm, hurricane, flood, sonic boom, earth slide, earthquake or other sudden, unexpected and unusual causes. Damage to your automobile resulting from a collision is also a casualty loss.

To qualify for the deduction, these losses usually need to be substantial. If you were significantly underinsured or had a large catastrophe deductible – for hurricane damage, for example – you may have a sizable unreimbursed property loss.

“Personal losses are claimed as an itemized deduction and are reduced by $100 per casualty event as well as 10% of adjusted gross income,” said Linda Treise, of Hughes, Snell & Company CPAs, Fort Myers, Florida.

If the casualty loss relates to your business, you can deduct the full amount on Schedule C. The amount of the casualty loss is the lesser of (1) the fair market value of the property before the casualty less the fair market value of the property after the casualty or (2) the adjusted basis of the property before the casualty happens.

According to IRS IRS IRS Publications, the definitions and guidelines for claiming income tax deductions for hurricane related casualty losses are as follows:

Disaster Area Losses – A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. It includes a major disaster or emergency declaration under the Act. See IRS Publication 547, Casualties, Disasters, and Thefts, for more information.

Casualty Losses – A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn’t include normal wear and tear or progressive deterioration.

If your property is personal-use property or isn’t completely destroyed, the amount of your casualty loss is the lesser of:

  • The adjusted basis of your property, or
  • The decrease in fair market value of your property as a result of the casualty

If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis.

Theft Losses – A theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent.

The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero.

Insurance or Other Reimbursements

You must reduce the loss, whether it’s a casualty or theft loss, by any salvage value and by any insurance or other reimbursement you receive or expect to receive. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation. For more information about the basis of property, refer to Topic 703, IRS Publication 547, Casualties, Disasters, and Thefts, and IRS Publication 551, Basis of Assets. You may determine the decrease in fair market value by appraisal, or if certain conditions are met, by the cost of repairing the property. For more information, refer to IRS Publication 547.

Claiming the Loss

Individuals are required to claim their casualty and theft losses as an itemized deduction on Form 1040, Schedule A , Itemized Deductions, (or Schedule A in Form 1040NR , if you’re a nonresident alien). For property held by you for personal use, you must subtract $100 from each casualty or theft event that occurred during the year after you’ve subtracted any salvage value and any insurance or other reimbursement. Then add up all those amounts and subtract 10% of your adjusted gross income from that total to calculate your allowable casualty and theft losses for the year. Report casualty and theft losses on Form 4684 , Casualties and Thefts. Use Section A for personal-use property and Section B for business or income-producing property. If personal-use property was damaged, destroyed or stolen, you may wish to refer to IRS Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property). For losses involving business-use property, refer to IRS Publication 584-B , Business Casualty, Disaster, and Theft Loss Workbook. These workbooks are helpful in claiming the losses on Form 4684; keep them with your tax records.

When to Deduct

Casualty losses are generally deductible in the year the casualty occurred. However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the casualty loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year. See Revenue Procedure 2016-53 for guidance on making and revoking an election under Code Section 165(i). Review Disaster Assistance and Emergency Relief for Individuals and Businesses for information regarding timeframes and additional information to your specific qualifying event. For more information, refer to IRS Publication 2194 , Disaster Resource Guide for Individuals and Businesses.

Theft losses are generally deductible in the year you discover the property was stolen unless you have a reasonable prospect of recovery through a claim for reimbursement. In that case, no deduction is available until the taxable year in which you can determine with reasonable certainty whether or not you’ll receive such reimbursement.

Any money you receive from insurance, government, or other parties to compensate for the damage reduces the amount of loss you can claim on your tax return. EXAMPLE: A hurricane completely destroys your home. You purchased your home five years ago for $500,000, but the fair market value of the home before it was destroyed was $700,000. You receive an insurance reimbursement of $400,000. The amount of your loss is $100,000 ($500,000 basis less $400,000 reimbursement). Assuming your adjusted gross income for the year is $100,000, you can take a $89,900 casualty loss on Schedule A ($100,000 – $10,000 – $100).

If the property is used in a trade or business, slightly different rules apply, so it is important to ask a qualified tax preparer for assistance.  If you think you might qualify for this deduction, collect all receipts, insurance statements, the police report (if appropriate) and other documentation and present it to your tax preparer to see if you qualify. And, of course, stay safe in this trying time.


When to Throw it Away

My father-in-law, Ronald, is a pack rat.  He and my mother-in-law can’t park their cars in the garage of their condominium because of all his stuff cluttering it up. There are old transistor radios, televisions (the black and white variety), kitchen appliances and a host of other things that you couldn’t sell on eBay if you tried.

“What’s this?” I asked picking up a large plastic bottle off of a folding table overflowing with all sorts of junk.

“Vitamins!” Ronald replied, “I got those on sale at Eckerd’s!”

“Eckerd’s hasn’t been around in how many years?!” I asked examining the faded label on the old bottle. “These expired in 1994! Why don’t you throw them away?” I said tossing them into the garbage can. From the look on my father-in-law’s face, I could tell he wasn’t happy with me.

Which leads me to today’s topic – when to throw away old estate planning documents. Often when I update clients’ documents, they ask me what of their old documents should they get rid of.

Let’s address ancillary documents first. Generally speaking, you can get rid of most old durable powers of attorney, health care surrogates and living wills if they have been updated. The one thing that you have to be careful about in this group is the durable power of attorney. Generally speaking it’s okay to get rid of old durable powers of attorney. Where this general rule doesn’t apply – and you need to take other action – is when one of three things has happened: 1) the power holder has a copy of it; 2) it has been used; or 3) a copy of the power of attorney is on file with a bank or financial institution.

If any of those three things are true, then you should have your attorney go through the legal steps necessary to actually revoke the power of attorney. Florida law provides step-by-step instructions that must be followed to properly revoke an old durable power of attorney, including sending notice to the power holder as well as to the proper offices of any financial institution where it has been used. Failure to legally revoke an old durable power of attorney could result in its continued use by the power holder – and unintended and possibly adverse consequences.

Next let’s talk about wills. When you update your will, you might update it by adding an amendment to it – called a “codicil”, or you may revoke the old will in the new one, and create a whole new will. When you amend your will with a codicil, you should retain the old one, since it (or parts of it) remains valid. When you update a will by restating it in its entirety and revoking the old one then it is usually okay to throw out the old one.

The only reason you may wish to keep an old will (or a copy of it) when it has been restated in its entirety is when you want to show a history of some act – such as disinheriting a certain friend or relative.

If you have a revocable living trust, you usually want to retain the old trusts, even if they have been restated in their entirety. This is due to the fact that new trusts usually build on old ones. As an example, let’s say that I have a trust dated January 1, 1996. I restate that trust in its entirety on July 1, 2011. I want to keep the old trust because it has a provision in it that allowed me to amend it – and usually the new trust keeps the date of the old trust so that I don’t have to re-title all of the assets that have been transferred to it. So if the IRS or a financial institution needs to see the old trust to make sure that the new one amending it is valid – it’s a good idea to have that old trust around for that proof.

When you’re like my father-in-law who likes to keep things – then this column is of little use to you. But if you are like me and like to clean out useless clutter from your life, then you should ask your attorney which documents you can safely dispose of.

And – by the way – if you would like an old blender that won’t work – give me a call. I can get you a great deal on one.

©2017 Craig R. Hersch.

Trustee Liability

When naming spouses, children or other loved ones to serve as trustees in your testamentary (after death) trust or trust shares, consider a recent case where an estate trustee who took an “egregious” position in litigation has been ordered to personally pay more than $140,000 in costs.

Lawyers say the costs decision in Craven v. Osidacz is part of a growing body of case law that says executors need to be cautious in how they conduct themselves in litigation, and, if they are not, they’ll be ordered to pay costs personally. Before someone takes on the role of an estate executor, personal representative or trustee, the party should know that they may have exposure to significant personal liability rather than assuming that their costs are all going to get paid out of the estate.

Historically, in estate dispute matters, courts order costs to be paid from the estate, but they have been shifting away from this in recent years whenever executors have engaged in unreasonable conduct during litigation. The case I refer to above concerns a claim for damages by Julie Craven after her estranged spouse, Andrew Osidacz, stabbed their son to death and threatened to kill her before he was shot to death by police in 2006.

The deceased husband’s brother, Michael Osidacz, became the executor of his estate. Craven brought a wrongful death suit against the estate as well as a claim for damages, as her deceased spouse physically assaulted her before they separated. The litigation dragged on for a decade, ultimately ending in May with a $565,000 judgment in Craven’s favor.

The Superior Court Justice found that Osidacz acted to carry out a vendetta against Craven to limit the compensation she would get from the estate and that he submitted “virtually no evidence” in the estate’s defense. “His actions went far beyond ‘misguided litigation’ and amounted to harassment of another party,” the decision read.

Craven sought more than $156,000 in legal costs.

The Judge ordered the estate trustee to pay costs personally on an elevated basis, as his conduct was “foregoing, reckless and egregious.” Osidacz will also be required to pay his own costs in addition to an order to repay the estate legal costs.  The decision serves as a stern warning for estate trustees to make sure they seek direction from the court and look to resolve matters at a very early stage.

This case is a good example of how litigation can become expensive, and it is therefore important for lawyers and the fiduciaries acting for an estate to consider putting evidence before the court in a non-contentious manner, because, if they’re unsuccessful, costs might be awarded personally against the estate trustee. To that end, many courts order the parties to engage in mediation in an effort to resolve disputes without trial.

While the extreme facts of this case don’t necessarily make it precedent for all matters where an executor/trustee unsuccessfully challenges a claim, it does offer a cautionary warning. I should note that this case originated out of Ontario, Canada and is not from the United States. Nevertheless, the warning is clear:  unreasonable conduct on the part of an executor/trustee may lead to personal liability.

Most estate trustees go into litigation thinking that they’re going to get all their costs paid out of the estate and it’s not going to cost them anything. As this case demonstrates, that’s not always the case.

This is a broad warning not only to those who take on the office of executor or trustee, but also speaks to the choices that one makes when naming their successor trustee. I have written a new book Selecting Your Trustee that delves deeper into these issues. I’ve found that many clients don’t fully understand the responsibilities associated with serving, and therefore don’t always make good decisions. This book provides guidance. For more information contact my office.

I Don’t Know a Single Person on This Earth Anymore…Not One

The below essay was written by a childhood friend of mine, Louis M. Profeta, M.D., who is now an emergency room physician in my hometown of Indianapolis, Indiana. It’s worth a read:

I couldn’t get him out of my mind. He woke me up at 2 a.m. and I paced the room, blew my nose and stared into my bathroom mirror studying my own aging features. He wasn’t my patient.

He belonged to my emergency physician colleague, Dr. Brian Thomas Fletcher M.D., who posted the case for some of us to read. It simply stated, “Saddest case ever.”

95-year-old male comes in for suicidal ideation. When asked why, he said, “My last friend died last week. I don’t know one single person on this earth anymore. Not one.”

My heart stopped when I read it, pausing a few beats perhaps, but I’m fairly certain it stopped. Now, the words woke me up.

I tilted my head under the faucet and took a long drink and laid back down. I didn’t take care of him but I could see him. Thin, balding in a shirt and slacks that once covered a robust six-foot frame now five-nine, a face etched by more than 34,000 sunrises that perhaps saw the decks of a destroyer, or the inside of a bomber somewhere over the Pacific or Italy. His silver, wire-rimmed frames magnify eyes with wrinkles that held tears for perhaps the first time in years, the last being when he buried his wife.

He looks off to the side, staring past the wall and reaches in his pocket and wipes his face with a handkerchief, and I hear him say to the wall since it will listen:

“I don’t know a single person on this earth anymore, not one.”

And the wall stays silent, but I can see Dr. Fletcher as he lowers his clipboard, swallows hard and briefly holds his breath trying to figure out the words. What is there really to say? Like all of us, he thinks to himself, “We failed you.”

Some years back, I wrote a piece that went viral, “Your Kid and My Kid Are Not Playing in the Pros,” and I got more than a thousand e-mails about the article. Most were supportive, some not, but what I was completely unprepared for was the correspondence I received from grandparents. For the most part, they were all absolutely heartbreaking. The central theme was that they did not know their grandchildren because travel sports had robbed them of weekends and Sunday night dinners and countless other opportunities to interact. Going to their baseball games in the middle of the summer — or sitting in a loud gym — was just not a bonding experience for them; it was physically exhausting. Besides, you can’t talk about rationing sugar during the war, or marching on the mall, or sitting through the Watergate hearings between timeouts. It doesn’t work like that, that’s not enough.

“I want to teach him how to make pickles, just like my grandmother taught me…how to needlepoint, how to build a chair, or change the oil. I want to tell her about the time I was a little girl and made my own clothes, or how to play gin rummy. I want to go fishing, or show him the books I read when I was 10 because I still have them. I want to tell them about stamps, and record players, and how Elvis took the world by storm. I want to talk about Jim Crow and Tuskegee and jazz and how to make greens and about the time we all sat transfixed trying to figure out who shot J.R.”

But as worlds do, the world changes, but it seems of late that while we spend our days lamenting the fracturing of the polar icecaps, we pass over the fracturing of the generations and we are leaving many staring at the wall and thinking to themselves:

“I don’t know a single person on this earth, not one.”

I know sadness. I know depression. Who hasn’t? I know fear; real fear and the feeling that there is no possible way things can get better (although they usually do eventually). But what I realize is one thing I do not know is loneliness: true deep, dark, all encompassing loneliness has blessedly never been with me. Brian’s words burned into my eyes and I thought of the thousands of elderly we see in our ER every year and the millions that must be shuttered behind countless doors that we drive by every day, how many of them are sitting in faux leather recliners, peeking through the shutters perhaps and watching a neighbor they do not know, play with their child and wishing to themselves:

“I’d like to tell her about Elvis or teach him to make pickles.”

Adapting: Technology and Wealth

As an estate planner, it is fascinating to me to see how some have acquired their wealth. When I began my career, many “wealthy” families had earned it the standard way, through careers, businesses and salting away a significant portion of their income.

It is even more fascinating to see how the rules of the game have changed so very much in the last several years. By that I mean solid businesses and careers can implode by becoming obsolete overnight. The microchip and the technological advances it offers has changed our society. Those who keep up with technology and incorporate it into their careers and businesses prosper. Those who don’t suffer.

And that’s because the microchip has caused many businesses and careers to fall victim to the “commoditization trap.” The commoditization trap, simply put, is the perception that the goods or services that your business offers are the same (a commodity) as any of your competitors. You see this most often today when shopping for goods. You might look in the bricks and mortar store but then go on the internet to find whatever you are looking for at a cheaper price.

And it isn’t limited to goods. Services are being commoditized too. Why should I pay the stockbroker his normal commission when I can trade for $6 on the internet?  Why should I pay the CPA to prepare my tax return when I can prepare my own for free using a web site? Why do I pay an estate planning attorney when I can prepare my documents on the internet for a fraction of the cost?

But there is a way for both businesses and service professionals to break free of the commoditization trap. They must first recognize the trap exists and then embrace the same technology that produces the gap in order to create unique, personalized value that consumers will flock to. Where everything looks the same, people search for someone who can provide three things – leadership, relationship and creativity. Those are elements that no computer can replicate.

Leadership, relationship and creativity enhance the consumer’s comfort, clarity and confidence.  Whether the decision involves which new car to purchase or how best to balance one’s investment portfolio, those that can help the consumer zero in on what’s most important to him or her will find success.

What this means is that it is the consumer and not the producer that drives our economy.  Large institutions – whether they are government bureaucracies or private enterprise – can no longer dictate how we live our lives. The old days of companies dictating what the consumer wants are over.

Take the music industry as an example. When I was a kid in the 1970s, if I wanted to buy a song that I heard on the radio, I would have to purchase the whole album for $15 or so.  That was a lot of money in the 1970s. Even though I only liked the one song but had to purchase the package – this was the way that the music industry packaged its product. The consumer had very little choice. Moreover, the artist got paid a tiny fraction of the album price. The music labels, agents and distributors got the lion’s share of the profit.

Today, if I hear a song that I like on the radio, I can go onto iTunes and purchase that song for $1.29 or less. I don’t have to purchase the entire album. Moreover, the artist realizes a much larger percentage of the revenue. He or she can upload his work into iTunes without the need for a record industry label. This is a consumer-driven (bottom-up) economic model. The record labels aren’t largely the players in the industry anymore. Without the microchip this wouldn’t be possible.

Another example can be found in the travel industry. When was the last time that you used a travel agent to book an airfare, hotel or rental cars? Consumers largely drive the travel industry economy. You can easily research destinations, read reviews posted by other travelers and decide on your itinerary from the comfort of your living room sofa. All driven by the microchip.

I can customize an automobile from the internet, design my own running shoes or even order custom golf clubs and have them delivered to my home within a few days. The companies that realize we are in an individual-oriented personal design economy prosper. They have circumvented the commoditization trap by offering unique-personalized fare utilizing the same technology that drives their competitors out of business.

These can be scary times for those who don’t adapt. But they also offer unlimited economic opportunity for those who understand the challenges and are willing to use technology to their advantage.



European Musings

Hello from Europe, where I’ve spent a good part of July. In late June we dropped off my youngest at a Brown University Spanish Immersion Program in Segovia, Spain—allowing us to tour Madrid and Barcelona. At the time I write this Patti and I are in Switzerland enjoying the Alps, and soon we journey off to London. We’ve been to Europe before, but for some reason—perhaps my advancing middle age—I now notice some things that I wish were truer at home.

While I am very proud to be an American and believe that our system is the best at fostering entrepreneurship and, therefore, innovation, I must say certain aspects of European life appeal.

While in Zurich, for example, my wife and I walked the old town searching for a dinner spot, eventually finding an Italian restaurant. Our table, like many, was situated on an outdoor patio adjacent to the pedestrian gasse (alleyway). It was nine o’clock in the evening, which is the beginning of dinner hour in most of Europe, even on workdays.

Locals and tourists alike strolled by. Our table was a nice place to people watch.

At the table beside us, a group of four clean-cut, good-looking twenty-somethings—a young man and three young women—conversed. Even if we were to eavesdrop we couldn’t understand most of what they said as they were speaking German. It was clear, however, that they were engaged in a variety of topics, enjoying each other’s company.

And that’s the first aspect of European life I find admirable. Dinnertime is used not to wolf down food in front of the television. Rather, it’s a time to have a glass of wine or a bottle of beer and engage in conversation for a solid hour or so before the actual meal is even ordered, nonetheless served. While the young man and women beside us each had an ever-ubiquitous iPhone, their eyes were rarely glued to the screens.

Servers are paid a decent wage and therefore don’t rely on tip income as do their counterparts here in the States. While the menu prices appear about twenty percent higher than ours, when you factor in the concept that tips aren’t expected, the net result is similar. While I’ve heard that this leads to rude, indifferent servers, we rarely found that to be the case. In fact, our delightful waitress at this particular restaurant provided a delicious strawberry tiramisu free of charge when she noticed that Patti hadn’t finished her main course, as it was a little too spicy for her taste. She provided the free dessert despite the fact that neither of us complained about it.

Perhaps because servers are paid a decent wage, table turnover is no big deal. They don’t rush guests through meals as it is expected that you will occupy your seat for several hours. Because I’m so conditioned to eat quickly, I had to consciously slow myself down to enjoy the atmosphere.  I’ve read numerous health journal articles promoting this style of eating. Here that’s the norm.

Dinner, in fact, is not the big meal of the day. Lunch is. We noticed while in Spain that the custom of a mid-afternoon “siesta” is followed as many stores closed briefly. I can’t imagine that taking place in any American venue, evidenced by the fact that American retail storefronts—including the Apple store—remained open despite the local shops’ mid-day break from the hustle and bustle.

Public transportation seems so much more convenient than what we have here in the States. Granted, our larger cities (New York, Chicago and Atlanta for example) do have good, reliable trains and subways whisking one about. But in Europe almost every major city’s local system is connected to an easy-to-use and not very expensive international system. Perhaps the United States is too large to expect such a network, but Patti and I enjoyed the clean trains providing a smooth, fast ride between our destinations. It’s so much easier and less stressful than an airport experience.

By the time this column makes the paper I’ll be home, back at work and conducting my normal life. I consider myself fortunate that I have the opportunity to enjoy other cultures and take a step back from the day-to-day routine. Maybe from now on we’ll eat dinner a little more slowly, keep the television off and our iPhones out of reach.

The Story of Uncle Benny

In my wife’s family lore they tell the story from many years ago about Uncle Benny who didn’t trust his doctors. One day Benny experienced crushing chest pains and was rushed by ambulance to the hospital. His wife and a host of other close relatives chased in a car behind. Once examined in the emergency room, he was transferred to a regular hospital room.

It seemed like eternity until a doctor arrived. The family nervously gathered around Benny’s bed while the doctor looked at everyone and smiled. “I have good news, Benny!” the doctor exclaimed. “You didn’t suffer a heart attack! You might have had gas or something else, but you’re just fine. It will take a few minutes but as soon as we process the paperwork you’ll be released to go home.”

Everyone in the room exhaled, chattering away with pleasure over the news. But not Benny.

As soon as the doctor left the room, he picked up the telephone and dialed zero on the rotary dial to reach the hospital receptionist.

“What are you doing, Benny?” his wife hollered at him.

“Shush!” Benny waved his hand in her direction pressing the receiver to his ear. “Hello? Is this the hospital receptionist?” Benny shouted into the telephone. “Tell me please. What is the condition of a patient you have by the name of Bernard Leber? ……CRITICAL!? CRITICAL YOU SAY?!?!?”

You see, Benny didn’t believe his doctor and instead chose to call the front desk of the hospital to see what condition they had him listed in. That was back in the day when you could call a hospital’s switchboard and find out a patient’s condition simply by asking.  Benny’s condition hadn’t been updated yet, and he believed what the receptionist told him over what the doctor had said.

There wouldn’t be such a funny story if Benny had been in a hospital today. The Health Insurance Portability and Accountability Act (HIPAA) prohibits doctors and hospitals from discussing anyone’s medical condition or history without that person signing a release. When you go to your doctor’s office these days you are typically asked to sign such a release naming the individuals the doctor is allowed to talk to without violating your privacy rights.

To violate HIPAA could result in the doctor or hospital committing a federal crime. Which leads me to today’s estate planning topic – and that is the important document that everyone should have as a part of their estate plan – the general HIPAA waiver and release.

Suppose that you are in an automobile accident. If you are rushed to the hospital and are unable to sign that hospital’s HIPAA waiver, then the doctors and other hospital support personnel are prohibited under federal law from discussing your condition even with your spouse or children. I would agree that this law is overzealous and borders on silly – but that’s what we have.

And if you don’t believe that a hospital would limit your spouse’s access to you in such an event – take it from me – they will. You see, thirteen years ago while alone on training ride on my bicycle, a car hit me. I was actually on the Summerlin Road bike path and not on the street itself when a car coming in or going out of a subdivision caused me to crash.

I don’t remember much about the accident. Whoever hit me fled the scene. A Good Samaritan must have called 911 – I was unconscious – and I was eventually rushed by helicopter to the Lee Memorial Trauma Center downtown. I had suffered skull fractures (my bicycle helmet saved my life) and was bleeding out of my ears.  I was a John Doe in the helicopter since no one looked in my bike’s saddlebag where I kept a health insurance card exactly for this scenario.  Eventually I was able to tell them Patti’s name and cell phone number. She got a very scary call and rushed to the hospital.

Where they wouldn’t let her see me.

Why? Because I hadn’t signed a HIPAA waiver! I was semi-conscious being treated in the emergency room.  But since I hadn’t signed a HIPAA waiver they wouldn’t let her in to talk to the doctors or to learn exactly what my condition was.

Luckily I have good friends who are doctors who also rushed to the ER and let Patti know what was going on. But it was frustrating for her.

After that incident I decided to include in my client’s general estate planning portfolio a standard HIPAA waiver and secure, mobile access to that waiver that allows each client to list any and all individuals he or she would want to receive their health status from doctors and hospitals in case they hadn’t signed that specific hospital’s waiver.

I believe that many other estate-planning attorneys are now following this protocol. If you don’t have such a document in your planning portfolio, you might want to ask your estate-planning attorney for one.

Because unlike my wife’s Uncle Benny, your family can’t dial the hospital receptionist to learn your current condition – even if that condition isn’t exactly up to the second accurate!

The Magical Money-Making Power of Imagination

As ABC is wont to do, a Harry Potter marathon aired this week, and I got to thinking. The last installment of the Harry Potter films was released a six years ago this month – which I can remember raised an interesting dinner conversation that that film’s debut sparked between me, my wife and our three daughters. “What do you think,” I began, “about the fact that an immense amount of value and wealth was created by a welfare mom who hand-wrote a manuscript on a subway as she headed to work?”

My kids didn’t know what I meant by “value” so I explained further. “Value is created when someone appreciates something – be it a good meal, a good book, a movie – or even when someone might have a better job or other exciting adventure due to something that was created. Here, because J.K. Rowling’s imagination created the world of Harry Potter in written form – it spawned the books, of course – but also the movies and all sorts of things. And true value is eventually what spawns wealth.”

My daughters got excited by the idea – and caught on quickly. They identified all sorts of value that would not have otherwise been possible but for the imagination of J.K. Rowling. Daniel Radcliffe (who played Harry Potter in the feature films), for example, may not have ever become an actor. All sorts of people – from the rest of the movie cast, to publishers, to screen writers, to movie production staff – all had interesting jobs that may never have been possible but for the Harry Potter books – and Rowling’s imagination.

The new film series, Fantastic Beasts and Where to Find Them, that takes place in the same universe as Harry Potter, as well as many new books and websites are constantly cropping up.  Each stems from the imagination of this now famous author, raking in thousands of dollars every day.

Universal studios even built a replica of Hogwarts inside of its Islands of Adventure, which was recently followed by a recreation of Diagon Alley in its Universal Studios – allowing all sorts of people who visit Orlando to have an enjoyable experience, notwithstanding creating jobs for architects, builders and craftsmen. So there was likely billions of dollars created out of one divorced woman’s imagination.

My daughters started to think about others’ imaginations that had similar impact. The list goes on and on. Aside from entertainment you have those who work in technology to medicine to transportation. And, by the way – that’s why America is one of the greatest nations on earth– because our culture fosters and encourages imagination. We don’t care about how things were done under the “old way”. We are always looking for the new, improved version of things.

So how does all of this relate to estate planning? I think it does in many ways. One’s estate and financial plan could be a stamped out carbon copy of many others – or it could have an imaginative outlook that instead fosters the values, hopes and dreams of its creator.

The man who owns and runs the family business has any number of ways that he can leverage that knowledge, wealth and expertise for the next generation aside from just turning over the keys. The retiree who has the wonderful beach cottage could create a family compound that is enjoyed and valued by future generations. The man who slowly built family wealth through shrewd investment management can impart those skills with those that he loves with the use of imaginative trust provisions.

When thinking about your own planning – I would suggest that you not think about your death so much as your life. What are your hopes and dreams for yourself and your spouse? In the next three years, what do you hope to do and to accomplish? What obstacles might stand in the way of those hopes and dreams? What opportunities exist that can help you overcome those obstacles? What are your existing resources that you can capitalize on but haven’t yet?

If you were to sit down and honestly answer those questions – I would suspect that you might become excited about the future. The future would look like it harbors all sorts of possibilities – as opposed to the same old stuff you’ve been caught in over the last several years.

After you’ve done that exercise for yourself – use your imagination to the benefit of your children or if you have them – grandchildren. What are your hopes and dreams for them? What do you hope that they would accomplish? What obstacles do they have in accomplishing their dreams? What resources are at their disposal and how might you compliment those resources?

When I speak of resources, by the way, I’m not necessarily talking about financial assets or wealth. The kid who has the drive and energy to put himself through college by earning good grades, getting scholarships, working part time jobs and supplementing all of that with student loans is a kid who has used all of the available resources that he has at his disposal.

I bet that you and your family have untold value locked up in your imaginations. I hope that you can have fun tapping it sometime.