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mother holds hands with kids - iStockThis article discusses some of the legal documents that can assist in planning for the physical care of a minor child in the event of a parent’s death or incapacity. Minnesota law provides that a parent may appoint a guardian over a minor child by will, designation of standby guardian, or certain other signed writings executed in the same manner as a health care directive. Wills are still the most common document used, but appointing a Standby Guardian seems to be increasingly popular. After reading this article you will have a general understanding of how both documents work to aid in the succession of a child’s care.

Using Wills and Trusts

The most common way parents plan for the care of their children is still through the appointment of responsible persons within a will. Traditionally, a will is used to name the person or persons that should take physical custody of the child if something should happen, and a trust is used to direct how assets of the parent should be managed – including for the benefit of the child. The person responsible for the child’s physical care is called the “guardian” and the person responsible for the management of the trust is called the “trustee.” It is not uncommon for parents to choose the same person to serve in both roles.

Under standard procedures, a guardian named in the will is able to obtain court confirmation fairly quickly after both parents pass on. The nominated guardian must first file the will with the proper county court (if it has not already been filed) and an acceptance of appointment. The nominated guardian is then required to provide a legal notice containing certain statutorily required information to the child if the child is older than age 14; the notice must inform the child that the child may object to the appointment. If someone else has physical custody of the child, the nominated guardian must also provide the notice to such person. If nobody has objected, the nominated guardian will then be granted Letters of Guardianship. If an objection is filed, a hearing will be held and the court will determine who may serve as guardian.

Using a Designation of Standby Guardian and Custodian

Minnesota law permits parents may petition for court confirmation of guardians and custodians prior to the death or incapacity of a parent, removing the need for a nominated guardian to seek approval from the court after something has happened. [1] Ostensibly, a will could be used for this purpose, but filing the will in this manner would make it a public document, meaning its provisions could be read by anyone that cared to look.

A separate document, known as a Designation of Standby Guardian and Custodian (“Designation”), should be used instead for a preemptive filing. The Designation allows the parent to maintain an increased degree of privacy relating to financial matters by avoiding unnecessary disclosure of information contained in the will. More importantly, filing the Designation prior to the triggering event allows the parent to proactively address possible challenges by family and friends who may object to the appointed guardian/custodian. By seeking court approval while alive, the parent may participate in a hearing should it be necessary.

If the parent creates a Designation, but fails to secure court approval prior to passing away, the Designation is still valid, though with limitations. A person appointed in a Designation not previously approved by the court automatically has authority to act for 60 days following the triggering event. The nominated person must seek court approval to extend the Designation for any period greater than 60 days.

The Designation of Standby Guardian should not be confused with the Designation of Temporary Guardian. Designation of Temporary Guardian is a document that parents may use to appoint someone to look after children while the parent is unable, for example, due to a trip overseas. The Designation of Temporary Guardian, however, is limited to 24 months in duration; the Designation of Standby Guardian has no such limitation.

What a Will and Designation May NOT Do

None of the documents discussed above may be used to deprive a parent of parental rights and responsibilities. Only a court may determine that another person may serve as guardian/custodian if the other parent: (1) still wishes to serve, (2) has parental rights, (3) known whereabouts, and (4) the ability to take care of the child. Furthermore, the above documents, on their own, do not relieve the responsibility of a parent to support a minor child, and the appointed person has the right to sue an absent parent for child support if the parent is neglecting their responsibilities.

Summation

Appointing a guardian and/or custodian in the manner discussed above is a simple and useful way to reduce friction in the succession of caregivers for minor children. Without any such document, a would-be guardian must engage in a much more formal, drawn-out, process, involving the preparation and filing of a legal petition, the court-appointment of an attorney to represent the child, the appointment of a designated visitor to evaluate the home and suitability of the proposed guardian, and a hearing to confirm the appointment. Appointment of a guardian – be it through a will or use of a Standby Guardian Designation – is, in contrast, much simpler, faster, and easier for everyone involved.

[1] Minn. Stat. §§ 524.5-202 and 257B.03 deal with the appointment of standby guardians and custodians, respectively. Though largely overlapping in the powers and rights they relate to, it is worth noting that guardian and custodian are distinct legal concepts. For example, there are some instances when a guardian may exercise the power of contract with regard to a minor’s property, but a custodian may not. For the purposes of this article, the distinctions between the terms are largely irrelevant.

This article does not constitute legal advice, nor does it constitute the initiation of an attorney/client relationship. Please consult an attorney licensed in your jurisdiction for assistance applicable to your specific facts and circumstances.

This article was originally published June 28, 2016 by Michael S. Divine on Dudley and Smith, P.A.’s blog

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Financial Plan & Insurance - iStockAre you a Fiduciary? This is the one question you should be asking whoever is offering you financial advice on any sort of investment product. So, what exactly is a Fiduciary and why is it so important? It’s simple, a Fiduciary is legally obligated to serve their client’s best interest. Most people are shocked to find out that not all advisors are, in fact, Fiduciaries and not acting in their best interest. And that’s what the new Department of Labor’s (“DOL”) Fiduciary Ruling is all about. On April 6th of this year, the new “Fiduciary Rule” was passed which will fundamentally change the way financial advice will be given in this country. Before I get into exactly what was included in the ruling it will be important to briefly understand how advice is currently being given.

Broker/Dealer versus Registered Investment Advisors (RIA)

Back in the day if you wanted to purchase a stock you would have a conversation with a stock broker usually from one of the big box firms like Merrill Lynch, UBS, or Morgan Stanley. They would sell you the stock and charge a commission for doing so. Today, there are many of these brokers who are either employees of these big box firms or operating as independent firms. They go by many different titles like financial advisor, wealth manager, registered representative, insurance agent and many others. They typically sell insurance products, loaded mutual funds, annuities, and other high commission products. Regardless of what title they use the important thing to know is they are not held to a fiduciary standard. Instead they are held to a lower standard, suitability standard. This only requires them to recommend products that are suitable for a client given their situation. This is much different from the fiduciary standard which requires the advisor to:

  • Put the client’s interest first
  • Act with prudence, skill, diligence, and good judgement of a professional
  • Not mislead clients and provide full disclosure of all important facts
  • Avoid conflicts of interest

Here is an example of how this would look in practice. Let’s say an advisor thinks that a certain mutual fund is suitable for a client. The advisor’s firm sells this fund with a 5.75% sales commission and high ongoing expenses. There is another identical fund (same investments) that has no commission and much lower on-going expenses. Under the suitability standard the advisor can legitimately sell the more expensive fund even though it’s not the best fund for the client as it is still suitable. The fiduciary standard, however, would require the lower cost fund be recommended to the client.

On the other hand, Registered Investment Advisors (RIAs), those registered with the states or the SEC are required to be fiduciaries. By contrast an RIA would look at your entire financial picture before making any recommendations. This would include a discussion around your goals and objectives, risk profile, liquidity constraints, among other factors. The way an RIA charges for their advice is also very different from a broker/dealer. Instead of commissions, RIAs will charge either a flat fee or a percentage of the assets they are managing. This reduces the conflicts of interest and is why RIA’s rarely recommend clients purchase whole-life insurance, non-traded REITs, annuities, and other expensive financial products.

Here is an excellent whiteboard animation that explains these differences in an entertaining way using the example of a Butcher and a Dietitian.

How The Ruling Changes the Game

The new ruling is over 1,000 pages long but can be distilled down to a single idea, which is that anybody who provides advice for a retirement plan or other retirement account (401(k), 403(b), IRA, Roth IRA, etc.) must adhere to the fiduciary standard, i.e. they must act in your best interest. Most people are surprised to find out that their “advisor” has not been acting in their best interest all along. Brokers and insurance agents across the country have routinely been able to give advice that isn’t in the clients’ best interest but rather is in their own best interest or the company they work for. The DOL is set to change this.

As the ruling stands currently, it’s reach is limited to retirement accounts only. It does not apply to all your taxable accounts like an individual, joint or taxable brokerage account. So consumers still have to be aware of the advice they are receiving. Hence, asking the question, “Are you a Fiduciary?” As well, RIA’s are required to provide consumers with something called Form ADV. This is a “firm brochure” written in plain English which outlines the fees, services, conflicts of interest, and background of an advisor. As an example, here is the ADV of my firm, Phillip James Financial.

This isn’t the first time we have seen a rule like this instituted. In the United Kingdom, commissions were banned outright in 2012 and since then 45% of all financial advisors quit the industry because they couldn’t make money selling products like they used to.

Specifically, the DOL ruling does not outlaw the sale of commissioned products but instead makes it easier for consumers to sue an advisor who sold a product that is not in their best interest. Currently, brokers make clients sign a form that forces them to waive their legal rights and instead accept mandatory arbitration. This serves two purposes; first, it keeps any grievances out of the public eye and second, it prevents class-action lawsuits. So rather than outright regulating the sale of financial products, it changes the legal standard by which an advisor’s actions will be judged, allowing the courts to decide what is considered in the best interest of the clients or not.

Most of the key provisions in this ruling will take effect next year and includes a transition period through January of 2018.

Wall Street Fights Back

The industry reaction has been quick and aggressive. Soon after its passing, industry lobbyists convinced congress to pass a bill repealing this rule but President Obama vetoed it. The industry didn’t stop there. Many large pro-broker organizations and trade groups filed a joint lawsuit in Texas in order to have the court overturn the rule. They argue that the rule violates the 1st amendment, basically saying they want brokers and insurance salesmen to be allowed to say whatever they want when selling their financial products.

The lawsuit was filed in Texas because that’s where they think they can find a judge favorable to their case. In the past, Texas has ruled against the DOL, so the industry was “Judge Shopping” hoping they could find a court favorable to their cause.

There is now a total of 5 lawsuits. You would think all of these lawsuits would argue that this new rule is not in the clients’ best interest. But that’s not what they are arguing, instead they cite the following:

  1. “Independent Insurance Agents who sell Fixed Indexed Annuities will be forced to exit the market.”
  2. “The rule will increase supervisory burdens and costs”
  3. “The rule would enable participants in IRAs to sue financial institutions and their representatives for breach of conduct”
  4. “Financial Institutions and Representatives will have no choice but to comply.”

Notice there isn’t a single argument about how this new rule is bad for consumers; instead, they only cite reasons why it’s not good for themselves. Forgive me if I missed the whole point of the ruling but I thought the rule was supposed to protect the consumers not the insurance companies.

My Opinion and the Effect on my Practice

While my own opinion is that it will be good for consumers, you might be surprised to hear that I am not as thrilled about its impact on my business. While I am already a fiduciary for all my clients (I don’t anticipate a large regulatory burden) I will however lose a differentiator. Most of my firm’s clients have done their homework ahead of time and come to us already knowing they want a Fiduciary advisor in which case broker/dealers are no competition. Or they are unaware of what a Fiduciary is, which upon learning are easily convinced of the benefits. If the government now forces all advisors to be Fiduciaries, it will be slightly harder for my firm and other financial advice firms like mine to easily differentiate among the 1,000’s of other advisors who are not fiduciaries.

In the end, it is still up to the consumer to look out for themselves. There is no assurance that your advisor is looking out for your best interest. Ask your advisor, “Are you a Fiduciary?” Some people even go as far as having them sign an oath stating as much. If they are not a Fiduciary, then maybe it’s not the right advisor for you.

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KeyThe Problem

There is a great divide in the current real estate market caused by the large percentage of homes being sold by baby-boomers and older generations or their heirs. Many of these homes are outdated and unappealing to Millennials and Gen Xers, who comprise 61% of all buyers and more than 80% of first-time buyers. The problem is, the current owners don’t have the time, money or knowledge to effectively update their home before selling it, and this is costing them greatly.

The Younger Buyer

The 95 million members of the Millennial generation are looking to buy homes that are completely updated and “move-in-ready” featuring:

  • Open floor plans, especially the kitchen open to the family room. Efficient use of space is crucial.
  • A home office or media room instead of a separate formal living room or dining room.
  • Lighter, brighter, open kitchens with updated cabinets, stainless-steel appliances, solid-surface countertops and enough room for the whole family and entertaining.
  • Walls painted with color schemes involving subtle whites and greys, therefore letting the decorating and furniture add splashes of color.
  • Hardwood floors or tile vs. carpet (and it should remain unsaid, but never, ever put carpet in a bathroom)
  • Mudrooms, storage space and pantries are also popular

This can be attributed to the reduction in average time of homeownership (down to five years) and lack of intent to invest “sweat-equity” – or any equity, for that matter – to update a home themselves over the years, as Boomers did. Millennials want to have full enjoyment of their house from day one.

Outdated= Lower Sale Price & Higher “Days on Market”

It’s common sense that homes in need of updating don’t create an emotional appeal for most buyers mainly because they can’t envision a home’s potential and how simple cosmetic improvements could have a dramatic impact. This causes an issue because statistics show that selling an outdated house typically takes 3-5 times longer than a “move-in-ready” one, which can be costly when having to pay property taxes, mortgage payments, utilities, interest and maintenance costs for each month the house doesn’t sell. The situation can be even more of a hardship if the house is inherited and now the responsibility of the owner’s children who need to sell the property quickly and end up accepting a low-ball offer from an investor or “home-flipper,” who then makes a profit.

Do-It-Yourself Barriers

When trying to address these issues, the vast majority of people realize they don’t have the necessary experience, time or money to successfully prepare an older home to be sold. Keys to effectively updating a property typically include:

  •  Identifying repairs needed to get a home up to code. No one wants to fall in love with a house, only to have several violations flagged during the inspection.
  • Correctly and impartially analyzing the property and its potential and then determining the ideal budget and scope of renovation based upon recent, nearby comps and an in-depth knowledge of local market activity.
  • Design and remodeling expertise to determine how to allocate the budget to best increase the value of the home and return on investment – most importantly without over-improving, a common mistake.
  • Assessing what updates to perform to increase curb appeal or cosmetics of the home, as well as staging, making the home most appealing to buyers.
  • Creating and executing a realistic plan. Do you have the capital and time to perform the updates and/or pay for materials, contractors, sub-contractors, permit fees, insurance, etc.?

The Solution

For homeowners who find they can’t effectually update a home before selling it, there are options. Revitalize Realty was created to help people in difficult situations sell a property as quickly as possible and for the highest price by assessing what enhancements would be needed to attract buyers, and then investing its own money to update the client’s home – from paint jobs and staging to actual construction projects. The Revitalization is done interest-free with no hassle or out-of-pocket expenses for the homeowner. Once the home is sold, Revitalize Realty earns a real-estate commission and standard construction fee at closing – with all the remaining profits from the sale going to the homeowner. The goal is to add value to a property by delivering a turn-key solution for owners looking to achieve maximum financial benefit when selling a home.

Revitalize Realty is more than just a “For Sale” sign in the yard and a listing on the MLS and provides a unique opportunity for homeowners by having a vested interest in selling their property. Every home and Revitalization is unique but a typical Property Analysis may entail:

RevitalizeAnalysis

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SECTION 179 – WHAT IS IT AND WHAT IS NEW FOR 2016

by Erik Doerr July 18, 2016 Uncategorized

Recently we have been meeting with many of our clients to discuss operational results for the first half of the year. Generally speaking, business is up from last year for my clients. As a result, […]

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Please: get the correct acknowledgement if you want to deduct that property contribution

by Robert Lynn June 30, 2016 Beneficiary

“Close” counts with horseshoes and hand grenades. Unfortunately, it doesn’t count for entitlement to deduct a charitable contribution, once the amount claimed exceeds a trigger point. When that happens, the taxpayer’s own records – no […]

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PROBATE CODE UPDATES

by Emma Maddy June 20, 2016 Probate

Starting August 1, 2016, the amounts available under the Minnesota Probate Code (Minn. Stat. Ch. 524) for a number of issues will be adjusted for the first time in more than 25 years. These issues […]

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MN Animal Lovers – Rejoice!

by Jennifer Santini June 3, 2016 Estate Planning 101

Until recently, Minnesota was one of the few remaining states that did not allow for a trust to be created for the benefit of animal. However, this past legislative session H.F. No. 1372 was signed […]

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Prince Leaves a Complex, Unplanned Estate

by Manish Bhatia May 4, 2016 Beneficiary

Unfortunately, too many recent newsletters have focused on the death of musical legends. This month left us with another untimely death. Prince, whose legal name was Prince Rogers Nelson, died on April 21st at his […]

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Life Insurance for Family Business Owners

by Bob Cohen April 5, 2016 Uncategorized

Owners of family businesses often find themselves in a dilemma over how to treat their adult children fairly when one or more is interested and capable of taking over the business and the other adult […]

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Vanishing Premiums Explained

by Bob Cohen March 23, 2016 Guest Articles

Many insured’s are confused and angered when the premiums of their “vanishing premium” life insurance policy, either don’t vanish or reappear at a later date.  If the policy was promoted and sold on a “vanishing […]

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The Power to Revoke at Any Moment

by Sarah Sicheneder March 17, 2016 Uncategorized

A popular saying goes “bad planning on your part does not constitute an emergency on my part.”  Estate planners cannot rely on such platitudes.  It is our job to fix bad planning especially in emergency […]

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