Ron and Jane had two daughters.  One was married and financially successful with her husband.  The other one was single, had very low income, and nobody expected that to change.  The parents had two homes.  One was their large residence, and the other was a small rental they had purchased for their low-income daughter to live in and pay them below-market rent.  

The new property tax law in California had just become effective a few months before I met them, and I commented that they should have come to see me earlier when we could have protected the low property tax level for the low-income daughter.  They said that they discussed this with their “wealth manager,” and he said that it didn’t really matter and they didn’t need to do anything.

The end result?  The daughter with the low income will never be able to afford the higher property tax on her house after the parents die and transfer it to her, so she’ll be forced to sell and move to an area with lower housing prices.  As the family accurately stated, “our wealth manager totally threw us under the bus on that one.”  Yes, the supposed wealth manager was just a stockbroker salesman who wasn’t qualified to advise them on unusual tax considerations, and wasn’t even up to date enough to tell them to seek out an expert opinion.

Andy owned a small incorporated construction company with about 20 employees.  During the recession, he made loans to his corporation to cover payroll and expenses.  The problem was that he wanted to keep drawing his regular salary, so he lent the corporation enough to cover that as well.  Andy’s accountant knew he was doing this, but didn’t grasp the consequences and didn’t advise against it.  This was a costly disconnect.

The result was that Andy paid more in income taxes, and with his higher income, he also paid more in spousal support and child support than he should have been paying.

To make matters worse, Andy owned his commercial yard and leased it to his corporation (this is a common practice), but there were dozens of vacant properties around him due to the recession, so he should have reduced the rent he was paying to himself.  By keeping his rent constant, he ended up paying more in income taxes, more in spousal support, and more in child support.  

Andy ran a successful construction company, but he didn’t realize how one part of his life could adversely affect another part of his life because nobody had ever tied the two parts together for him.

Robert’s mother was in a nursing home and he had spent $450,000 of her money paying for her stay there before he came to me.  He told me that the nursing home said his mother wouldn’t qualify for Medi-Cal to pay for the nursing home because she owned her home.  That’s completely wrong.  The family lost $450,000 because they believed a false statement from a non-financial person.

I met Dorothy through her financial advisor.  She was in a predicament.  Her husband was in the hospital and was about to be discharged to a skilled nursing facility, and it was unlikely that he would ever recover sufficiently to go home again.  The financial advisor, like so many other financial advisors, stated on his website, and to his clients, that he could help them with estate planning. But I knew him through several meetings with him, and it was very clear to me that the advisor knew almost nothing about proper estate planning.  He only knew that his clients should have an estate plan in place.

Dorothy’s estate plan wasn’t properly done with elder law in mind, and her investments of about $1 million in her stock portfolio were now in jeopardy.  She was facing a new cost of about $14,000 per month for the care of her husband, and simultaneously looking at the prospect of running out of money for herself if she lived as long as she thought she’d live.

The difficult part was that the financial advisor salesman was the one who had referred Dorothy to the estate planner, who knew nothing about elder law, and now the financial advisor was put in a position of trying the defend the inadequate estate plan in order to save face in front of his own client.  I wasn’t aware that the financial advisor salesman was the one who had referred Dorothy to that estate planning attorney, so it was very awkward addressing the issue of an inadequate estate plan, and the advisor salesman trying to defend the plan and save face.  

In the end, Dorothy decided to keep the inadequate plan and just pay for her husband’s costs at the nursing home, and hope, by some miracle, that she wouldn’t run out of money for her own needs before she died.  But, like I’ve stated before:  Hope is Not a Strategy.

It was a case of an ill-trained financial advisor referring the client to the wrong professional, and then the client getting hurt because the financial advisor, who was a salesman and not a properly trained advisor, had to defend his decision to send Dorothy to the wrong estate planning attorney in the first place.  The financial advisor wasn’t about to admit that he had made a mistake with his referral, or admit that he didn’t really understand estate planning himself, because that might have resulted in him losing his investment client.  An absolute circus of errors.

Carol and Sue are mother and daughter.   Carol was in her early 90s and wanted to make some changes regarding her three properties — two rentals and her main residence.  One rental that she owned outright by herself was to be gifted to her son, and it would become his primary residence.  The other rental was owned 50:50 with Sue, and Carol wanted to gift her half to Sue, and then Sue would sell the rental and use the proceeds to buy a new house for herself and her husband.

I asked Carol and Sue whether they had checked with their CPA to know what they’d have to pay in capital gains tax, and they said they knew they’d have to pay some tax.

The plan was for Carol to gift her share to Sue, and then Sue would sell, but I suggested that they go back to the CPA and have him run the numbers on whether Carol and Sue should both be owners at the time of the sale to reduce their overall capital gains tax since Carol was in a much lower tax bracket than Sue and her husband, who file jointly, or maybe Sue could even gift her half to Carol for Carol to sell it all in her name and then gift the proceeds to Sue.

They got back to me later and said that the CPA said it wouldn’t make any difference because Carol had rental income that put her in a higher bracket.

Really?  Wait, wait…..  We were already very close to the end of the year, and once Carol gifted the one rental to her son, and then sold the other rental, she wouldn’t have any rental income the following year, and she’d then be in such a low tax bracket that she might not pay any tax at all.  All they had to do was wait about two months before they sold that rental, and then they’d save about $50,000.

The CPA just wasn’t thinking through the entire transaction.  Rather than listing the property for sale in October and having the sale occur in November, I was able to save them about $50,000 in tax by telling them to just wait and list the property in November or December, but make sure that the sale wouldn’t be completed until after the first of the year.

Once they explained the reasoning behind my plan, the CPA agreed that I was right, and the family saved a lot of money.

Charles joined a fairly large company where I worked.  He was an Ivy League MBA, and he always wanted everyone to know that.  He wasn’t at all shy about letting people know about his Ivy League MBA within the first few minutes of meeting with anyone.

We were talking casually one day about IRA and 401k plans, and he stated that they’re “tax free.”  I corrected him that those plans are really only “tax deferred,” and that tax is paid upon withdrawal of the funds at a later date.  He laughed at what he thought was my lack of knowledge, and informed me that in all of his Ivy League MBA experience, he had never heard anything so absurd, and that I clearly didn’t know the ins and outs of these programs.

Right then, the CFO of the company stuck his head in my office to ask how I was doing, so I asked him to enlighten our Ivy League MBA.  The CFO laughed and said I was right, and joked with the Ivy League guy about how was it at all possible that he had graduated from an Ivy League MBA program and didn’t even know that the IRAs and 401ks are only “tax deferred,” and not “tax free.”  

Despite the MBA’s financial education, he seemed to have missed that crucial point about the taxes being merely deferred.  The poor chap was thoroughly embarrassed, but I’m sure he’ll remember that issue for many years to come.

Marty was thinking about retiring, but wasn’t sure what to do about his home and his mother’s home.  Marty’s house had good equity built up in it, his mother’s house had a tremendous amount of equity, and Marty was his mother’s sole heir.  They were both my clients, and the mother had expressed a lot of different ideas to me, but nothing was solid.

Out of the blue, Marty told me that he had a plan for them to sell both homes and move to the far reaches of Northern California about 100 miles south of the Oregon border.  He had already looked at houses up there, and was trying to figure out when he could retire.

Whoa……  I asked him to think a bit.  How would they handle the purchase of one or two new homes?  They would sell both homes in San Jose, and then buy up north.  

I asked whether he had figured out how much they’d owe in capital gains tax.  I figured that they’d owe about $300,000 to $400,000 in tax, but Marty said that they wouldn’t have to pay any tax because they’d be buying new residences.  Really?  That tax law that he was relying on had changed many years ago, but Marty wasn’t aware of that change.

If they had sold then, Marty’s mother would have paid about $300,000 in tax due from the sale of her own home.  She was around 90 years old at the time, and in declining health, and I explained to Marty that if her house was sold after her passing, they’d save around $300,000 in capital gains tax.  

He was shocked to learn the tax laws, and quite jolted that he had almost made the wrong move for his family without knowing the consequences.

Karl was another contractor who also had about 20 employees, but ran his company as a sole proprietorship.  He had a large cash balance in his company account, but he carried a lot of high interest loans for trucks and trailers, and also for personal items such as his RV, boat, another trailer, credit cards, and the family vehicles.  The interest on his business items was deductible, but he was still paying high interest rates on that debt and the interest on the personal items was at the same or higher interest rate, but not deductible.

I asked Karl why he didn’t take some of the money in his company account to pay off his debt, and he responded that if he touched that money, he’d have to pay income tax on it.  Really?  He’d been working with the same CPA for years, and apparently the CPA did the personal and company tax returns looking in hindsight and never discussing how Karl could make improvements to his financial situation.  They had never discussed debt management or planning.

I explained to Karl that, as a sole proprietor, he had already paid all of the taxes on the money that was being held in his company accounts, and he could take some out to reduce his debt payments and save on interest.  He laughed at me and told me that he had a super-sharp CPA, and I just didn’t know taxes, so I encouraged him to not take my word on it, but simply call his “super-smart CPA” and have his CPA explain the tax situation to him.

The CPA told Karl that I was right, and Karl admitted that he was completely embarrassed by his lack of knowledge on taxes and for having done things the wrong way for nearly 20 years.  —  Yes, twenty years!  And the CPA had never taken the time to do advance planning with Karl to reduce his interest payments and save him a considerable amount of money.  The CPA just kept preparing the tax returns year after year.

Karl ran a successful construction company, but he lacked the basic tax knowledge about how things affected him financially.

Ellie’s husband was failing rapidly.  He needed to be in the nursing home, and we had to create a specialized trust and transfer the assets so he would be eligible to have Medi-Cal pay for his stay.  I handled the real estate transfers, and I referred Ellie to a financial advisor to handle the stock transfers (I was not yet a financial advisor at the time.)

The financial person advised Ellie that she needed to sell a lot of her husband’s stock to diversify away from the predominant stock that her husband had from his employer.  Although everyone expected the husband to pass within a short time, Ellie went along with the advisor and sold a lot of stock to buy other stocks.

The stockbroker never advised Ellie of the tax consequences if she sold.  The end result was that the stockbroker made some great commissions, but Ellie was hit with a surprise tax bill of about $75,000.  Ouch.

Jill’s mother had been in the skilled nursing facility for over ten years before she died.  It was a nice nursing home, but between Jill and her husband’s income and savings, and the mother’s savings, they had spent over $1 million on her mother’s care.  Jill was an only child, so there was no one else to be able to count on for financial assistance.  The financial burden fell to Jill and her husband.

We could have saved Jill and her mother about $900,000 or so if they had come to us years earlier, but Jill was told by the nursing home staff that her mother wasn’t eligible for Medi-Cal support.  That information was wrong.  It was simply wrong.  We could have transferred the mother’s assets to a specialized Medi-Cal Asset Protection Trust and she would have been eligible to have Medi-Cal pay for the nursing home stay.

The mother had been in one of the area’s nicest nursing homes, and that nursing home also accepts Medi-Cal, so the mother would have been able to remain in that same, nice nursing home for the rest of her life.

John and Beth owned a few homes.  John was in declining health, so Beth thought she’d sell a home to get money to fix up another property and have more in the bank for themselves as John declined.

She contacted a Realtor to help sell the property and when the Realtor found out that she had three expensive homes in that area, he pushed her to sell all three.  Why?  She didn’t need the money, but he convinced her that “now was the right time to sell.”

She thought she was getting unbiased advice, but the Realtor just wanted more commissions for himself.  It was an incredible conflict of interest with the Realtor pushing her to sell what she didn’t need to sell, and him not explaining how much she’d owe in tax.  But Beth didn’t realize that there was a conflict in interest.

She now has more money in the bank than she needs, but she also now owes about $1.5 million in capital gains tax on the sale of those three properties.  That’s a huge and unnecessary loss to the family’s wealth.

When I explained what had happened to Beth, she was in shock.  She asked why she hadn’t come to see me for advice four months earlier.

Carla and Cindy are mother and daughter.  Carla’s husband had died decades earlier, and then her disabled daughter died, and now Cindy was her only child and sole heir.  

Carla had been bedridden for a few years, and had round the clock care that was incredibly expensive.  The CPA had been helping Carla for years, but then his own health faltered and he had to ask someone else to step in.  The new person sought the help of another attorney, and that attorney referred them to me as soon as she realized the complex financial issues that the family faced.

The house was in a very pricey area, and had gone up considerably in value since Carla’s husband had died.  Carla was almost completely out of money, and I was asked to help them get financing to keep paying for Carla’s care.  I looked at the trust, and I immediately saw another problem.  If we couldn’t get Carla’s trust changed by a court order prior to her passing, Cindy would be hit with a tax bill of about $300,000.   

I explained it to Cindy and the person helping them with tax matters, and then I explained it to Carla.  I doubt that they fully understood all of the tax issues, but everyone was in agreement to make whatever changes were possible to protect against the high tax bill.

Fortunately, everything worked out well.  We changed the trust with a court order, and then I helped them to secure the unusual financing needed to pay for Carla’s care at home.

Carla was able to remain at home until her death, and the home sold for more than Cindy or I had anticipated.  Rather than saving the $300,000 I had estimated, Cindy saved what would have been about $350,000 or more in taxes if we hadn’t made those changes.

Bill and Ann were both in their 80s, and it was the second marriage for both of them after they each lost their first spouse to cancer.  Their residence was of substantial value and they also had substantial stock holdings.  Part of their concern with the estate planning was that the survivor of them be allowed to remain in the house without selling it, but that the investments of each would pass to their own children, and then their own portion of the residence would also pass to their own children following the sale of the residence after the death of the second spouse.

They wanted a conference call with two of their children, and they also wanted to include their stockbroker salesperson who referred to himself as their “wealth manager.”

I had positioned the estate plan so that we could protect the assets if the couple ever needed to get one or both of the spouses on Medi-Cal to cover their skilled nursing costs if that was ever needed, but the “wealth manager” went on a rant about never going to the nursing home because they’re such “horrible places.”  He went on for several minutes with horror stories he had heard about from other people, and I didn’t even bother trying to stop him.  

Once he had finished his rant, I asked whether he had ever been inside a nursing facility.  He admitted that he had never been inside a nursing home, but added that he had heard enough stories so that he didn’t need to visit one to warn his clients of how bad they are.  

Really?  And you know the soup needs salt before you taste it?  And you know that a stock price will go up next week because someone told you it would?  And you call yourself a wealth manager while making broad, unfounded and ill-informed comments that could seriously harm your clients’ well-being and their ability to pass assets to their heirs after their death?

Some nursing homes are simply not good, but others are very nice.  They aren’t the place where you go to spend the holidays and have fun, but if you’re in need of 24-hour skilled nursing care, some are very nice.  And with the couple’s extreme desire to leave assets to their children, I had to tell them that I’ve had clients who lost $1,000,000 to $1 million of their assets to a nursing home stay when I could have protected 90 to 95% of that amount if they had simply been aware of the possibilities and had come to me sooner.  

Additionally, it has been estimated that up to 50% of “healthy” spouses die before the ill spouse from the emotional and physical stress of caring for the ill spouse.  People need to know about options and exercise them when appropriate, but they don’t need fearmongering from ill-informed “wealth managers” who the client thinks and expects to have knowledge of what they’re talking about, but, in reality, the financial salesperson is just making unfounded comments based upon rumor.  Is that how you should be advised?  Is that how your wealth should be managed?

Angela was in the nursing home.  She and her family and her doctors all assumed that she wouldn’t ever be able to leave.  She was not in good health, and she was declining rapidly.

With Angela’s approval, we transferred her highly appreciated residence to a specialized trust with Annie, her only child, in charge of the trust and the only beneficiary of the trust.  Everything was to go to Annie, and Angela was okay with anything that Annie wanted to do since Angela was going to be in the nursing home for the remainder of her life, and Medi-Cal was covering the cost of the nursing home.

Annie owned her own home, but had no money, and she desperately wanted money.  I advised Annie to not sell Angela’s home until after Angela’s death, and that we could borrow against the property to get money for Annie.  If Angela’s home was sold before her death, Angela would owe about $700,000 in tax!  Yes, $700,000 in tax!  (For reference, Angela’s home was on a large lot in a very desirable neighborhood of Los Altos.)

But, with Annie’s desire for money, and her Realtor “friend” pushing her to sell immediately, she sold the property.  Annie got cash into the trust, the Realtor took home a huge check, and Angela was hit with a tax bill of about $700,000.  Wow!  Greed won over rationality.

Three months after the sale, Angela’s CPA called me.  I thought he was going to criticize me, but he was completely in agreement with me, and he had also previously advised Annie to not sell Angela’s home until after her death, or she’d be forced to pay about $700,000 in capital gains tax.

Even though Annie had two professionals advising her to wait and not sell, her own greed and the pressure from her Realtor “friend,” who wanted a big pay day for herself, won out in the end, and now Annie and her children will get about $700,000 less than if she had simply listened to Angela’s advisors.