OWL 703 Essential Estate Planning Tips to Protect Your Family and Avoid Probate

Hi everyone, it's Bill Black, The Exit Coach from The Exit Coach Radio Show. You know, one of the biggest questions I get on the show is, what exactly goes into a business exit plan and when should I start creating mine? Well, I always tell people that the best time to start was five years ago, but the next best time is now because you never know when you might need it. So we put together a free report that describes what an exit plan is and what you should know.

You can get it free by texting EXITPLAN with no spaces to 44222. That's EXITPLAN to 44222. Again, text EXITPLAN to 44222. Welcome to the Exit Coach Radio Show, the show for baby boomer business owners who are looking for cutting-edge information as they plan their three- to ten-year business succession and exit.

Every week, we interview top professional advisors for their best tips, strategies, and precautions so you can be well-planned. And now, here's your host, the Exit Coach, Bill Black. Thanks so much for joining me once again today. It's a pleasure to have you with me.

We interview quite a wide variety of guests on the show, and it's my pleasure when guests come back. Rod Hatley is joining me next from Hatley Law Group. And Rod began his journey to becoming an estate planning attorney with a devastating, drawn-out, seven-year probate experience when his dad, who had been ill for a while before he passed away, And, uh, although Rod knew that, you know, he needed to set up a trust, um, the father couldn't bear the thought of parting with legal title to the assets he'd spent his life accumulating.

Now, does this sound familiar to any of your situations out there? So as a result of the lack of preparation, it took Rod and his sister seven years to get through probate in their hometown of Memphis, Tennessee. He's now an attorney serving those needs for his clients. Rod, it's a pleasure to have you back on the show.

Thanks for joining me today. Thanks for having me. Pleasure to be with you. Rod, that's a devastating story.

You know, a lot of things happen as a result of adversity. But can you tell us a little bit more about that, fill in the blanks there, and then tell us a little bit about what you do now at your law firm? Oh, sure. Well, thank you for asking.

Very simply, I came to California with the Navy JAG Corps, former Navy JAG. So if you ever saw the movie A Few Good Men, that's what I used to do. And in fact, I did represent the accused at courts martial, so sailors, Marines, and sometimes even Coast Guardsmen. And in the middle of all that, Dad, who had leukemia, Dad, he was sick, and he needed to do more planning.

And I knew enough at that time about state planning to be dangerous, so I just said, Dad, I really think we've got to do more planning here. And I didn't really know the difference between a trust and a will. I just knew that we needed to do more. So anyway, dad couldn't, and you understand why, because he was fearful, and fear takes over.

A watch, it goes out the window. So anyway, long story short, dad passes on. I take emergency leave. I go back to Memphis, and we get dad buried, and then we open up the probate, and that just turns into a seven-year experience.

And so in the middle of all that, I decided, you know, I wish I'd known more about how to handle stuff like this. I mean, I was honored to be, you know, a trial attorney representing the accused at courts marshal, but I really wanted to know more about tax law. So when I came off of active duty, I moved to San Diego. I'd never been stationed here.

And I got an additional law degree in taxation. And then it transitioned into private practice. And this is what I've been spending the past 24 years on, is working with clients on, you know, how to, you know, avoid probate, avoid conservatorship, and make that transition whenever it comes as stress-free as possible for the family. I mean, obviously, they're going to be devastated at losing you, but let's not compound that by tying them up in court for years in some cases.

So anything I can do to help families with that, I think, is a really honor. It's really an honor to be able to do that. Yeah, and we, you know, people, I think, hear that from their advisors about getting tied up in probate and that type of a thing. But it's a real horrible experience.

It really does put people's lives on hold. In some cases, they can't sell, right? They might not be able to sell assets because they can't be retitled. And people just want to move on.

They don't want to get tied up on the courthouse steps. Why does probate take so long? Why could it take seven years? Well, that was a special situation in Dad's case.

Now, ordinarily, and that's like at the extreme end of how these things can go, but ordinarily, whether it's back in Tennessee or it's here in California, probates just take time because you've got to identify. First of all, if there's a will, you've got to find the will, and then you've got to file that with the court. Then you have to contact the creditors, and you've got to get them paid off. And then whatever's left over, you have to marshal the assets and inventory them, and you have to get those distributed out to the beneficiaries.

And it just takes time. And, of course, the challenge now, we're in this pandemic, and so the courts are shut down. And so it's just - and everything has to go through the court, and the court just takes time. And I always tell people if you don't have a will or if you do have a will and that's all you've got, that's a ticket to probate court.

We don't like probate for three reasons. It takes time, it costs money, and it's a matter of public record. And so these are all good reasons to avoid probate if you can and if you're open to having a conversation about how we might do that. So I hope that that helps explain part of why it just takes so long to get through the probate process.

Yeah it does and I looking at your website HatleyLawGroup and a very nice picture of a three family prominently displayed on your website And so a lot of our listeners are age 50 plus As a matter of fact, most of our listeners, some of them are 60 plus. Probably not too many people listening to podcasts at 70 plus, but we hope so. Anyways, a lot of those people are experiencing a lot of change in their families right now. Like on your picture, you have a husband and wife, presumably now grandparents.

parents, their children, a nice-looking couple, and two up-and-coming youngsters. So things can be changing very rapidly at this time of life for a lot of our listeners. So how often, like every time a grandchild is born, should they be reviewing issues and trusts, or can they work with you to set that up? Yeah, it's an excellent point to bring up.

What I like to do with my clients, now obviously they don't have to come back to me, but I hope that they do, I encourage them, you know, look, we're going to put a great plan into place. I mean, it may not be the perfect plan, but, you know, we can get better over time. Let's get a good plan in place, and then let's review it about every three years, and let's make sure that we're capturing a number of possibilities. Number one, there'll be changes in the law.

We know that. The law is nothing if not dynamic. Number two, there'll be changes in your personal situation, people. children and grandchildren are born and unfortunately family members pass away for whatever reason sometimes it's age and obviously some people pass away because of the coronavirus infection so things happen so it's impossible to write a document one time that takes care of everything for all time so it it really needs to be updated and maintained on a regular basis and I encourage clients to come back about every three years.

And here's the big insight. For me, when I work with clients, their health care directive and their HIPAA authorization, those are the two important health care documents that they need here in California. I get them, I buy a membership for them in a company called DocuBank. And so what happens is I provide a copy of that health care directive and that HIPAA authorization to the folks at DocuBank.

And now I'll pick on myself. I have DocuBank. DocuBank. So if I'm in a car wreck and I can't head to the hospital, I can't speak for myself, then in my wallet next to my health insurance card is a DocuBank card.

That DocuBank card, they can call, the hospital can call that number, toll-free number 24-7-365 on a copy of my health care directive and my HIPAA authorization will be faxed over to the hospital. And that way, my health care agents can then be contacted, come to the hospital, It'll make those important decisions on my behalf, talk to the doctors and the nurses, and have access to my protected medical information. So about every three years when that card is about to expire, that's a great time for the clients to come back in and see me.

Now, they can come in in the meantime. I mean, if something happens, they should say if there's a birth of a child or grandchild or whatever, and so that would impact the plan. Or if we've gone through a major tax change like we did about two years ago, that can also be a good time to review the planning and see what's going on. But as I say, don't think you can write it one time and it will take care of everything forever.

Now, I see something else interesting on your website, Rod, and that is it says that you all do estate planning viewed through the lens of asset protection. Now, I think there might be a misnomer out there amongst a lot of people that think, well, isn't the estate plan asset protection? Aren't my assets protected if they're in a living trust? Can you address that?

Yes, let's talk about that because that can be very confusing for people. And here's the reality. When I draft a living trust for a client and as I meet with clients to talk to them about doing an estate plan, if they own real property in California, let's say they've got a home, they really will do a lot better to have a living trust because that asset will never go through a probate in California if it's owned by a living trust. But here's how a living trust works.

I tell them, visualize in your mind an open top box. Okay? It's got no lid on it, so it's a box, and the assets that go into the box, like your home, bank and brokerage accounts, et cetera, are in the box. Assets in the box never go through conservatorship if you're incapacitated mentally.

And, of course, they'll never go through probate when you pass on someday. But remember, it's an open-top box. So if you can reach into the box and take out your home to refinance it, let's say, or to close out a bank account and open up a new bank account and retile it in the name of the trust, so can your creditors. So it offers you no protection at that level.

But when we have the death of the first spouse, we can set up - we can draft the trust in such a way that the surviving spouse will have access to the deceased spouse's assets in the trust. But those assets will be protected from that surviving spouse's creditors. And then, of course, we can talk about how would you like to leave assets to your children or your grandchildren or whoever you care about. You can leave it to them outright free of trust, and they get it at a stated age.

I don't like that because if they get sued or have a divorcing spouse, they can lose those assets. We could also do a staggered or sometimes it's called a staged distribution where you get a third, 25, half at 30, and the balance at 35. Okay. It's slightly better, but still, if there's a lawsuit act out there or a judgment creditor or a divorcing spouse anywhere along that line, those assets can be taken.

But possibly the best answer would be, would you like to lock this up in trust for your children or your grandchildren's benefit? They'll always have access to what you left for them. They can even, at a certain age, step up to the plate and be a co-trustee of their assets and manage them and invest them. But if they ever get sued or they have a divorce and spouse, they can resign as a co-trustee of their trust share, and they still have a trustee in place to make distributions to them for their health, education, maintenance, or support.

Those four purposes the IRS recognizes And that a much in my opinion in my experience much better way to leave assets to people you care about So I don like to see outright distributions or even staged distributions I don't think those are the best answer. I think a lifetime protected trust can really be the best answer for someone who wants to leave a legacy. Now, not that this would ever happen to any of our listeners, but there's a situation in California, especially, that a lot of people go through changes in their marriage.

They get divorced. They get remarried. Those are especially critical times to pull out everything and review them, aren't they? Yes, it would be.

And, in fact, when a married couple files for divorce, there is an automatic stay in California. And we don't want to get too down in the weeds on this, but certain asset or estate planning strategies can't be employed during the pendency of that divorce litigation. So there's something that we can do. A lot of things have come off the table.

And so if someone is going through that kind of a situation, there is such a thing as a divorce will. So basically, let's say a husband and wife are getting divorced, and the wife wants to make sure that if she were to pass away during the dependency of litigation, that stuff would not go to her husband. She could say, I'm going to do a will that leaves everything. My half of the community property, I want it to go to my kids.

I don't want it to go to my soon-to-be former husband. So that's one way that we can provide some value in the middle of a difficult situation like a divorce. But it's a great question, so that would be a good time to review things, because your legal relationship is now going to change. So that's a great time to be taking a look at what do we have in place and what should be updated.

Makes a lot of sense. And, of course, now we're in the midst of COVID-19, and a lot of business owners out there are, you know, they're wondering whether they're going to make it through or not. So maybe they see their business doing, let's say, okay. I know that in surveys of groups like Vistage Worldwide that I'm very active in, they see about 25% of businesses are actually doing great.

About 25% are on their way out, and the middle 50% will probably make it through, but there might be some questionable times. What should business owners be thinking about now if they're in that middle 50% or even the bottom 25% to protect their assets? Let's see. Great opportunity to take a look at what liabilities out there you have, and we can certainly have a conversation.

If you think that you may be looking at defaulting either on personally guaranteed loans or any other lines of credit that you have, You know, we can sit down and we can review your rights and your responsibilities, and my meetings are always complimentary, so I never charge for the meeting. And then at the end of the meeting, if I believe that I can be of contribution, if I can help, then I'll quote a fee, and then it's up to the client at that time or the prospect, I should say, to make a determination whether they want to move forward or not.

Even if they don't move forward, the way I structure my meetings is such that, you know, it's okay if you don't move forward with me. I hope that you will, but if it's not a good fit, I get it. But I hope that when you leave, you're smarter for the conversation that we've had. We've reviewed rights and responsibilities, and you're in a better position.

Now you're empowered. You're in the driver's seat, and you can make informed choices is what I'm getting at. So for the top 25%, wonderful. They're going to survive.

For the middle, 50% and the bottom 25%, probably a good time. Let's take a look at what's going on. And what can we do, if anything, to protect you going forward? So anyway, I hope that that helps.

Now, Rod, I know you're a modest guy, but for the last several years, you've been named as one of the top firms in San Diego to do business with as a law firm. What do you attribute that to? That doesn't happen without some intention of becoming a top law firm. What makes your firm so great?

Well, I think really having lived through the nightmare of a seven-year probate, I mean, for a lot - and I get it. For a lot of firms, they do this kind of work, and for them it's an intellectual exercise, and it's wonderful. But for those who've had to live through the trauma of a seven-year probate, you know, and it's not what dad wanted. I understand that.

It's not what he would have ever wanted, but that was the default result. So for me, this is real-world stuff. I get it. And so I don't want any of my clients to ever go through that if I can help them avoid that.

So for me, this is really a passion. It's something that I believe very strongly in. And it really brought it home during this COVID-19 pandemic. People didn't have the planning in place.

And so now some families have lost loved ones. And that's truly tragic. And not only will those lives have been lost, but then there's probably the subsequent probates that will have to come out of this. And, of course, now with the courts being shut down for so long, you know, it's going to be a brand-new world when we start to come out of this.

And so it's going to be frustrating for a lot of folks. And for me, I just never wanted to see another client, whether it's an individual or a family, have to go through a probate. I like to say, look, I've been through a probate, so you don't have to. That's good.

Yeah, yeah. That is a great compassion. I'm sure you have a lot of compassion with clients as they're dealing with those issues because you have lived through it. Let's imagine our listeners are sitting down and poised over a legal pad to take some notes from you on your best three tips, ideas, or precautions regarding their estate planning or their asset protection planning What would you tell them Okay Let see If you got a will that great You at least done some planning That wonderful.

But remember, wills don't take effect until you die. Okay? So it's not doing you any good until you do pass away. And I'll give you the cynical definition of what probate is.

Probate is a lawsuit you file against yourself with your money for the benefit of your creditors. So I'd always say, you know, if you own real property in California, talk to an estate planning practitioner, someone who does this regularly, and let's make sure that we get a good plan in place for you to include a living trust that owns your real property and owns your other assets, investments, et cetera. And also on top of it, make sure you've retitled the assets in the right way so they're owned by the trust.

And so that's number one, is work with a good estate planning attorney to get this done. Number two, I think it's important, keep the plan updated and maintained. And we've already talked about this, but it really bears repeating. Again, you can't do something one time that will take care of everything for all time.

So let's make sure that we get you back into the office on a regular basis. And if you have a financial advisor, you're probably seeing that person or you're probably talking to that person maybe once a quarter. And that's fabulous. You should do that.

But for the estate planning, if I can see the clients about every three years, if not sooner, I think that's terrific. I would always say don't go more than five years. But some clients don't come back for 10 years. I mean, at least they came back.

But I mean, missed opportunities are, you know, and we don't want to see that happen. We want to be able to Keep the plan updated and maintained as we go forward. And then number three, I guess, is don't be afraid to meet with an attorney. Here's the thing.

Talking about your passing away doesn't make it happen any sooner. And so I think a lot of people get nervous and they get confused or concerned, I should say. Well, if I go and talk about getting my estate plan done, I'm going to die that much more quickly, especially if someone, for example, in my dad's case, If you have leukemia or you have a disease, it's terminal, and you just think you're going to die that much more quickly. It doesn't happen that way.

But just confront the reality. We're all going to pass at some point. Let's just do it. Let's be responsible.

Let's get out there. Let's take care of this. You'll have some great peace of mind. And when that day comes, then your family will be left in a better position than if you had done nothing at all or you just did the bare minimum like a will, which is better than nothing.

but it's a guaranteed ticket to probate court. Rod, some practitioners say that this is a real age of opportunity in some ways in that the gifting laws now allow for large gifts to be made. Tax rates are low. Interest rates are low.

There are several strategies that business owners can take now to do effective estate planning and avoid unnecessary estate taxes too, aren't there? Oh, yeah. The applicable exclusion amount is a - I'd like to call it a coupon. That's the amount of money that an individual can leave.

I think right now when your president lost $11.58 million, and so between a married couple, they can shelter, oh, my goodness, almost $23 million worth of value, and it's not going to ever be subjected to an estate tax. So, this is a great opportunity for folks if they've got significant wealth, or maybe they're not bumping up against that applicable exclusion amount limit, but it might be a great opportunity to talk about, well, we'd like to shift wealth now, and we can probably do so for a really low or almost no transfer tax cost to us, and we can still have access to the assets that we gave away.

We obviously don't have time during this interview to go into a lot of detail on that, but there are great opportunities for clients to find themselves in the fortunate position of having significant wealth, that they can shelter it and move it around in a way that works for them, and we can also asset protect that, and we can make a real impact on the future generations, provide income and opportunity for their families, which is a wonderful blessing to leave your - a nice legacy to leave your family if you're positioned to do so.

So I really encourage folks, you know, have that conversation sooner than later because that really high, almost stratospherically high applicable exclusion, that I call it a coupon, is going to go away in 2026. So great opportunity to do this now, and, you know, your family will reap the reward. You know, there's an old saying, one generation plants the tree, the next generation gets the shade. So I think that's probably a great way to look at this.

That's great. Great information. The website is Hatley, T-L-E-Y Lawgroup.com I've been talking with you And it's been a lot of great Information shared today, so I really appreciate It.

Rod, thanks so much for coming On the show, and I hope that we Won't wait so long in between Our interview the next time. It's been a lot of fun And I know that you're also a member Of ProVisor, so you're well Connected if listeners want To get referrals to other individuals in the area and other professional areas. So thanks so much once again. It's been a real pleasure to have you back on the show.

An honor. Thank you so much, Bill. Thank you for listening to Exit Coach Radio.