Probate Accounting

Leo and Claudine discuss what you need to know as a business owner about probate accounting, including the legal side of it. What must you pay attention to? What are the most common mistakes when approaching probate accounting?
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Speaker 1 00:11 Good morning.
Speaker 1 00:12 Are you awake? I hope so because you are listening to business and legal talk with Leon. Claudine, come on. Good morning. Good morning. What’s, Oh here. Here it is. Saturday. It’s up. Kelly. It’s a Oh man. Hey, we were talking a little while ago about fall being in the air. It’s official. It’s cold in the morning, right? Isn’t it great. Now if you’re in LA, you’re like cold. What is that? Right, right. Okay. Sorry. Define cold for us here in a central Valley. 60, right? 55, 48 was being in the mornings. Yeah, that’s pretty cold in my neck of the woods. Yeah, that’s pretty cool. It’s great though. Now you know, and I know, um, a lot of folks are looking forward to, um, to Thanksgiving right around the corner. Is it, have you started to achieve the year? Cannot be slipping by. I gotta make my quota.
Speaker 1 01:16 You better get out of town. Gotta sell, sell, sell Bay. Get out there and sell. Yeah, no, I can’t believe it. Okay, so here we are, right. And, um, October. And, uh, how do you know I go to, you know, the operational D, the growth guy that I am, I’m like, have I met, where am I with my, my, all of my goals? Because here’s the thing, what we do is for the, for, for know, if you’re the casual listener to our show, we’re business illegal talk with Leah and Claudia and I handle the business part. You handle the legal part. I’m all about growth. But more importantly, profitable growth that is going somewhere. And one of our last podcasts we talked about, you know, a talk shows, we’ve talked about scale into sell, right? Right now we’re going to have a, another show to you, but it’s all, that’s where my mind goes.
Speaker 1 02:02 So it is October. You’re saying Thanksgiving, I think. Oh my gosh. Do I have enough time? Because you know why I love what I do, right? I love what you know, I’m all about helping business owners be profitable in going where they want. I ha I have a passion and if you met me, I’m a passionate person who is consumed, would help, consumed really bursting, bursting out of my skin. I jumping out of my skin to help business owners. And I know we do this show because we bought the same, right? So today we have an interesting show. We’re going to go tell him a little bit off topic, but come on. It’s a topic that is not completely new to this show. It’s a topic that we have talked about. Um, if you are alive and living, um, one of the consequences of that state is that you will at some point you will not be living anymore. So as we talk about exit strategies in the business, part of that exit strategy is
Speaker 2 03:00 to plan, um, and plan financially, plan for your business. And part of that is also planning for what happens when you are no longer, I’m sorry, you had me as a consequence of living as a byproduct of living. You’re dying. That’s right. It’s true. Right now we are living to die. Oh my God. This is not a doom and gloom show, no business illegal talk with Leah, Claudia. So we better spin it into some good news. But honestly, this is a subject that’s really hard for a lot of people to deal with and it is, it’s really, really important because unfortunately there’s one of two ways that this is going to happen. It can be, um, what I refer to as a gift to your family, um, which is to have a living trust in place and you know, make clear and known, um, who are your financial power attorneys?
Speaker 2 03:51 Who are your healthcare power of attorneys? What is your health health care directive, um, ensuring that you’ve left instructions for, um, how you want things, uh, to be distributed beyond your lifetime. Now, that’s one way. The other way you can go as you can go probate, which is let’s do nothing and let the state taking control of it. And we all know how well that’s going. So, okay, before we get down to far down, what happened is that our producers and the people that are involved in making a show turns into a podcast or like Leah, what is the show about? Right? So we’re going to tell you what the show is about. Probate, accounting, what you need to know, right? And probate, probate, legal side, and the legal side. So private probate, accounting in the loop and the legal side and the what you must pay attention to, right?
Speaker 2 04:40 Um, and what, you know, maybe there’s a big mistake that people do. What is the biggest mistake people do? We have when conducting this, right? Cause then I’m talking about it today, right? And unfortunately, what people don’t understand is that you can avoid probate yourself by having a living trust. Um, and, and planning for what happens after you pass away. But unfortunately you can’t control everybody else. And so ultimately you end up dealing with it and it does tax you emotionally, physically, financially for those who are involved in it. So, whether it’s your mother, brother, sister, child, um, you know, whatever family member, any, you may be asked to manage to be an administrator of a state for somebody who’s not a blood relative, but they’re a friend and there are somebody that, you know, if you have a will. So this is a piece that a lot of people don’t understand.
Speaker 2 05:33 If you have a will, your will is still going to be probated. It’s going to go to probate and it’s going to go through the probate process. And this is what people, I think this is the biggest misconception that I run into. People think that they have a will, even if it’s a holographic will, which is a handwritten, you know, and that’s perfectly okay if you sit down one day and you just want to write it down. Um, you know, this goes to this person, this goes to that person that will to be lodged with the court and it goes through the entire probate process. So the only people who have living trusts or, um, you know, whether it be a revocable or irrevocable trust, only those people avoid probate. So the vast majority of the world is going to enjoy somehow some way the probate process.
Speaker 2 06:16 And what is probate? It’s basically the court’s oversight in the distribution of assets. And that’s where folks like you come in the distribution of assets and what are the assets and what are the value of the assets because of there are times where, um, if it person passes away without a will, then things are supposed to be divided equally among a class of heirs, whether it’s children or cousins or aunts and uncles. And it gets really complicated at times when we have various assets, maybe we have property, maybe we have paintings, maybe we have household belongings. And all of these things have to be kind of categorize and, and distributed. And we do have probate examiners or inappropriate referees who work within the court system who do appraisals, and they do give us some sort of evaluations. Um, the question is what happens if they’re, we don’t think they’re correct.
Speaker 1 07:14 Wow. Okay. So that’s amazing. So I, I know how I or how we as a firm get involved is occasionally there has to be some due diligence, some investigative reporting if you will, some forensic stuff. Uh, that it’s gonna I’m sure that that’s kind of had to fix it. I don’t have a ton of experience on the matter and I’m hoping that, you know, obviously you do. So it’s going to be a great thing and I’m going to be actually vicariously living through your experience on this show. But um, any, you know, uh, before we get into much into it, we know with a, with a couple of minutes and before we have, before we get to the break, um, so anything that we should be paying attention to, uh, a few, you know, if you’re giving, if you’re distilling some knowledge on, uh, what tidbit could, could you have the business owner here right now where we are in a year, like anything that they should be aware of at this time in a year with regard to probate or just this general general cause. Once we get into it, I want to just start diving into the different topics.
Speaker 2 08:12 Well, definitely this time of the year we’re in the fourth quarter. This is, you know, as, as you, uh, I’m sure tell all of your clients and would like everybody who’s listening with an earshot to know this is the time of year. We need to start looking back and looking forward. At the same time we want to look, look back. What did we do? How did we do it? Did we accomplish the goals? Did we not? Did we exceed them? Did we, you know, come in a little under the goals. And then we want to really look at what’s coming up, um, and coming up for the new year. What changes can we make? Maybe we don’t make any changes at all. We are reaching out to all of our clients right now, all of our business owners and looking to schedule an opportunity to meet with them on corporate meetings.
Speaker 2 08:55 Now when you set up your corporation, typically the bylaws identify the date of your required annual meeting, you’re not restricted to have just one required annual meeting. That is just in your bylaws. And frankly you could, if your corporate meeting in your bylaws is scheduled to be, say in may and you would rather do it in the fourth quarter just because fourth quarter is that opportunity where everybody is really kind of looking at their businesses and they’re kind of looking forward and looking backward at the same time. Um, have that corporate meeting, we’re reaching out now trying to schedule our, um, our clients and at the same time we’re asking our clients to please get in touch with the CPA, whoever’s your tax or financial advisor so that we can include them. That is a great opportunity. Um, I also like to, when possible include the insurance person because the insurance person for us works hand in hand on liability and then we have bookkeeping tax.
Speaker 2 09:51 And so the bookkeepers are oftentimes not the tax people. Correct. And so we want to work hand in hand and we, by having one kind of bigger meeting, we can move faster. Um, we can sit down, take an hour, take you know, 50 minutes, whatever the case may be. Um, throw it all on the table. The bookkeeper say, this is what I want. The tax person says, this is what I need the bookkeeper to get me, you know, this year what I want you guys to do is I want you to calculate it this way or account for it that way. And for us, we look at the liability, we look at what is our insurance look like? Is there some way we can cover liability with insurance? What’s the cost effectiveness, right. And all of that stuff.
Speaker 1 10:30 Man, that was a lot. That was a quick, I know your eyes rolled back in your head. Just lost me about 30 seconds ago, but I’m back, but you’re back. Okay. Anyway, just in time for the break. So stay tuned. We’ll be right back talking about probate and why should you care? We’ll be right back.
Speaker 3 10:46
Speaker 1 11:18 okay, I’m back. We’re back. We’re back. Hey, welcome back business and legal talk about the antibody. And I was waiting for the producer to pay me the finger. Like, Hey, go, go, go. He gave me the finger and he gave me good. Right. That I missed that I had to finger him back. So anyway, Claudine, this is your show. Wasser I know he’s a very nice man. He’s amazing. Real deal producer. Anyway, Claudine, what’s up? So probate. Yeah, we um, you know, w I think it’s really
Speaker 2 11:47 important for people to kind of have some sort of a glimmer of, of what the probate process is and just, you know, the 40,000 foot elevation. It is, it is a complex process. There’s a lot of dates and deadlines in that are, that are court driven, but it is a process that people are usually floored once they get involved with it. And they had no idea what a mess this is, how costly it is, um, what the rules are. Um, and they think it’s mostly just kind of like the court is just gonna S you know, bang the gavel and let all the assets just transfer. And there’s quite a process and we have to rely on, um, you know, how to evaluate the assets. And again, we, we do use the court appointed, uh, um, referees and they do provide that. But what happens when you disagree and what happens if they valuate a property?
Speaker 2 12:46 So I was talking with another estate planning attorney, um, here in Modesto and, and she was sharing some of her experiences. Um, we have, there’s a piece of property that’s right now for sale through the probate process. So the owner has passed away. Um, property is, uh, almost 300 acres, almond, almond farm on it. So we’ve got crops on it. So it gets really, you know, kind of convoluted and, um, and in depth. And so, you know, what we were talking about is, is when, when the probate, um, uh, appraiser evaluate something and the property is put on the market, you know, what is the chances that you’re going to be able to move that price point. And, um, did is, and we’ve talked about this in, in, in past shows, even our, our last show, uh, we talked about evaluating businesses. And, um, having somebody who’s, you know, say for example in the legal industry, evaluate the legal business that’s for sale or having somebody w who, who is a CPA come in and evaluate the bookkeeping service or the CPA business that’s for sale.
Speaker 2 13:51 You know, industry specific people coming in and are, are the court appointed folks that come out and do the appraisals. Um, are they that familiar with almond crops and, and the, you know, evaluating the trees. Because I have several clients in the almond industry who’ve told me it’s similar to looking at flip houses. You know, a house can be run down to such a point that it is more costly than buying the bare property because the condition of the property is so dilapidated and so rundown. And the same thing happens with, um, with crops, you know, particularly the trees, trees that, you know, grow for 20, 25 years. Um, there comes a point in the, the economic life of that crop or those trees to the point that what’s the value of having them because they’re at the end of their life. And now we have the costs of ripping out plus percent of the useful life.
Speaker 2 14:47 Right? So, so then we have to evaluate, well wait a minute. So what I actually have is this land that is burdened by the this, you know, these trees that are on it that are at the end of their useful life and now we actually have to incur the cost to get those trees off and then perhaps replant or you know, whatever you would do. And so it was a really interesting conversation that we were having regarding the evaluation in, which was always what makes me think of you is whenever we’re evaluating how, you know, how do we go about that? And I, and I thought that would be an interesting subject for you in terms of valuating assets because I think from your perspective, it probably doesn’t matter whether you’re evaluating them to buy and sell a business or you’re evaluating them for, you know, the purpose of transferring assets between family members or you’re evaluating it for an advisory position with a client that we jumped in and we need to evaluate,
Speaker 1 15:47 you know, the word acids gets thrown around a lot by a lot of people in different disciplines and a lot of people don’t really understand what an acid is. Does that happen to you? No, I think I’m probably guilty of it because to me an asset is a thing of value. Yes. A thing of value. Okay. Um, you know how I define asset? I’d love to know a makes money there is positive cashflow. Okay. And a liability. It costs you money is negative cash. So I put everything through the lens of a balance sheet and a balance sheet. Right? Assets make you money, liabilities loose you money. I lost that minus. And then as equity, right, right. Like assets equals the formula of the balance sheet. Assets equal liabilities plus equity. If you have no liabilities, your assets equals equity. So when I look at anything is through those lenses, right?
Speaker 1 16:51 Of course you use your own lenses as as an as a, you know, as a, as a, as a, as an attorney. But for me, when I’m evaluating an asset, and that means in our, in my purview, it is as he pretends to a business, right? I put something together that backs like that is called a personal financial statement where you and I have talked about that I, you know, and multiple times, which is the aggregate of your personal be know balance sheet and your sources of income. You know, your, your, your assets and your liabilities and your net worth. Now, except that in a person we don’t call it equity, we call it what net worth, what is your net worth is the stuff that you have an own that can turn into money and the stuff that you owe that you have to pay back.
Speaker 1 17:44 And the difference is your net worth, right? If you have $10 million worth of assets and $5 million worth of liabilities, how do you fill in the gap in another five right to 10 equals 10. Right? So when I’m evaluating as is, is, is the asset producing income. You know, I love this definition from Robert Kiyosaki. You know, as to he, he was one of the early guys in the 90s when he wrote this book that we all know the reach that bore that. Then he talked about that a home. It’s not an asset. Why? Because they thought it wasn’t many. I thought it was an asset, but I think it does make you money. Well, you can be, if you are gaining equity, if you’re, you can be house rich and cash poor. That is, that is true. So at some point, an acid that could make you money doesn’t make you money.
Speaker 1 18:38 What are you going to do without acid? You have to get rid of it, right? You have to cash into the asset. You have to turn it into cash after all, it’s what we know. The reason why I see an asset sometimes, um, as a liability is when technically is disguised as an asset. But true is a liability, right? You’re pumping money into fixing this acid. Where are we just talking about the almonds, right? You, what is the cost of fixing this acid? So it turns into a profitable asset, which ma me know it, which is kind of an oxymoron. Why will you have an unprofitable acid? All assets will be profitable. So I’m sorry, I went on a rant.
Speaker 2 19:18 That’s okay. It’s a great rant because it’s, it’s that reminder that we need to keep having, is that how you look at it? how many people are house poor? Quite a lot. Unfortunately.
Speaker 1 19:31 You know, uh, a lot of people are, but in even businesses that are a lot of people that are asset rich and cash bore, um, and a lot of businesses are not making money so that we don’t, we really don’t have a lot of assets. But for the sake of this show, for the sake of the show, you know, assets, it’s get involved and entangled in probate. Right? Which is where you come in. How do you, you know, how do you advise your clients, you know, how does it, how do you, are you brought into earlier on in the process, where do you get involved in this whole mess? Um,
Speaker 2 20:06 I often times, um, somebody has, um, there’s a death in the family and they have, nobody has ever really considered how do we change the title? Um, and for example, let’s talk about real estate. Um, and that’s probably the biggest challenge. Um, I had a client come to me whose mother died. She owed very, very little on her house. Um, he started making the payment. Um, he set it up so that it was automatic withdraw from the bank account. And three years later got a notice that there was a scheduled trustee sale. Um, and there had been the appropriate notices along the way. And even though he was never default. And what happened was the bank figured out that the loan was for mom and the loan was no longer being paid by mom because mom was deceased and the bank didn’t have a contract with sun bank, had a contract with mom.
Speaker 2 21:02 So even though he could have qualified, he didn’t realize what he was in for, he didn’t realize what was happening. Um, and didn’t take any proactive measures. And the bank sold the property at foreclosure and he lost a ton of equity because anytime you sell it foreclosure auction, um, while foreclosure foreclosure auctions are now a lot better than they used to be in terms of, uh, generating, uh, uh, price points, you still lose equity then that you would have not lost. How’d you put it on the open market? And so you, I, you never, in my opinion, ever want to go intentionally through auction. Uh, there’s rare circumstances where that makes sense. But with that being said, um, so we’re usually coming in at that point where somebody has not taken a proactive measure or mom passed away 10 years ago and nobody’s ever transferred the property and now we need to make a move with it. Now we need to do something, now we need to get alone or now we need to sell it. And you go to go to the title company and it’s not that easy. You don’t just walk into the recorder’s office and there’s nobody to sign the grant deed to, to transfer the title. So we unfortunately, and I, this is just the nature of our industry. We get involved when it’s a problem and it’s not always a problem, right? When somebody passes away,
Speaker 1 22:20 will you ever get involved when it’s, everything is going hunky Dory and there’s no problems? Would there be a need for you to get involved with this? Last week I had, it’s all bad news all the time. Never really. Great
Speaker 2 22:29 couples come in, um, and proactively set up a living trust. Really. So that was it. I mean, and I, I just am so excited when that happens because I see people taking that step to, um, avoid the problems even though you’re not going to be the one dealing with it. It’s going to be your family members who are dealing with that. But, um, so yeah, we do occasionally and, um, our business owners who are really, um, on top of their game are seeking advice on, on a regular basis. Um, and we are making accommodations with those business owners, you know, in terms of billing and charging and, and ensuring that they have access to advice without going bankrupt and unexpected bills. So with that said, um, the, the, let me explain a little bit about the probate process and how it gets started. Initially you’re going to file the petition for probate and we’re going to have somebody ideally, um, a family member who’s a nearest relative, um, is going to be named as, um, administrator of this state. If there is a will that named somebody else, then they don’t have to be a family member. It would be whoever is is, um, you know, named in the will.
Speaker 1 23:39 So think of our audience right now. You know, that, that who we speak to on a, on, on, on a weekly basis, you know, these are uh, probably, um, I would imagine, you know, between 35 and 55 who are either, you know, have parents that take care of and so you kind of have the sandwich generation, right? We’re in the middle of it, right? And I’d throw myself in there. So there’s a fair amount of us that are business owners who have assets, right? Spread out or then you have kids and you have parents. And, and D in the midst of this is if I am a business owner, why should I be listening to this? What, what should, what will you say to a business owner that may or may not have done any of this stuff? What’s your duty to do today? Right?
Speaker 2 24:22 If you have not made any provisions whatsoever, it’s very likely that your business is going to fold upon your death. And one of the things is it is, it is scary and it then, depending on how much of a role you play and is there anybody else in the family that plays a role? Is there anybody else in the family that can step in? Um, now, you know, there are a lot of things that get involved. Um, from the business perspective, if somebody passes away, um, if that person was the personal guarantor on the lease, are you just going to be able to walk in and renegotiate that lease and put that lease in your name? Maybe. Maybe not. Um, are, are you, um, are, do you have access to the bank accounts? Are you able to pay the bills? Is there somebody set up, um, are you a micro business? Um, or are you a small business owner and, and you have done like Oprah Winfrey and you sign all of your own checks and there is no other signer on your bank account, you know, so, so how do we keep the business going? How do we cover payroll? I can’t just walk into a bank and start writing checks on your account. The bank doesn’t let that happen. A disaster preparedness. Yeah. It, you know what I think that is honestly probably the best phrase. Um, when we talk about probate and avoiding, it’s disaster preparedness.
Speaker 1 25:42 So is this the about the buzz word for the show disaster? So I think we’re onto something. That’s the title. I think that’s the chapter. Well we figured it out. All right, so we’re at 25, 30 minutes into this show. We have a title, everybody disaster preparedness and why should you care? So stay tuned. We need to go to break. We’ll be right back. Business illegal talk with Leo and Claudia making you money.
Speaker 0 26:24
Speaker 2 26:31 well welcome back. We are back on Saturday morning and we are talking today about probate and DAS disaster preparedness. I think that is, I’m so excited about that phrase because somebody who has, who has lived through a couple of probates and assisted clients going through them and for those who are out there listening and who have, um, been through the probate process, um, disaster preparedness really, really describes it well. Um, so we were talking offline, um, a little bit about, um, you know, valuations and, and, and probate and, and, and what the administrator of the estate’s responsibilities are and just kind of wanted to, to touch base on that a little bit. So when somebody is appointed as a minister of the estate, they have a tremendous amount of fiduciary responsibility and their responsibility is to locate and assess the assets. Um, and so number one job that is, that is essentially it’s, so the administrator, the estate consider them to be kind of the, the family member appointed that works with the attorney who’s the attorney is kind of the lay as onto the court and the family member is kind of the liaison to the rest of the family and all the personal stuff.
Speaker 2 27:47 So they’re the family member is the, or the close member, whoever’s appointed in in a will is the most likely person to know. Um, the personal assets, the personal workings of the person who deceased. Um, you know, an attorney who has no idea who this person is and never knew him at all, would not likely know that, you know, this deceased person had, you know, PG&E stocks or you know, stocks in, you know, various companies or, or, or other assets out there. So that’s why the system is set up to work that way. Um, so the deceased, or excuse me, the, the appointed person, the administrator of the estate is, is responsible for kind of gathering up all of those assets and figuring out what they are. And then, um, a lot of times we do rely on the probate referees or the appraisers who are working within the court system who are going to, they’re registered with the state.
Speaker 2 28:45 They, um, you know, are qualified people. But sometimes we get into situations as we were speaking before the break, um, where the, the evaluations come in and we maybe we not sure if they’re correct. Um, so what happens, for example, when property gets put on the market to sell on behalf of the estate and it’s overpriced, so then we go through another process to get the price lowered. And, and each step of the way, in order to do that, each step of the way, we have to have court approval. Um, and so it’s not just an easier and easy road when, um, when we have the court appointed appraiser set a value on a property that’s, that’s it. That’s pretty much, um, and we don’t usually get, yeah, we just don’t get much more than 2% either side of that. Um, and so it’s, it is a process. And then what happens is the family is waiting and waiting and waiting. I, I know I’m thinking of several properties in my mind right now that are on the market, that have been on the market for a very long time
Speaker 1 29:52 because subject to probate because the probate person is, Oh, talking about the trustee is that no, no, no. With a living trust. Okay. So hell, I’m uneducated. So I want to be educated. So what, who are the key players in this whole thing? You know, and we’ll go back to this whole real estate transaction in the property, in the market. So what are the players? So we have a judge, so we have a jar
Speaker 2 30:16 court in the probate court, only handles probate matters and matters of transferring in and distributing assets, um, through that, through the court court process. So we have the judge, we have, um, a family member, a close, somebody close or somebody who’s named in a will who is appointed as administrator of the estate. And again, they’re the liaison between the heirs and the court. And then we have the attorney and the attorney is the liaison between the court and the administrator of the estate. And the attorney is there to kind of guide the administrator in their duties and their duty is to, um, either, uh, follow the instructions of the will or if there was no will is to follow the default rules that we have set up in California probate quote code. So the default rules is we divide up the assets amongst the nearest relatives. So for say, for a person, um, we have a spouse that’s nearest relative. We have children. So what if there’s no S no children, no spouse. Then it goes to a sibling. What if there’s no siblings? Then we go to a parent.
Speaker 1 31:33 There’s a hierarchy to follow. Now, you know what I’m saying? What? I know you were swearing them. I know it meets you. What’s it called? Perse. Derby’s first RP. Like a cat purring. PAER but close pers. I know, you know what I think about when I think about this whole discussion we’re having, I think about celebrities and when they die. Yes. Prince. Yes. Um, I think people relate to that because it’s a diff, they live in a different world, right? And we’re talking about hundreds of millions of dollars at stake. How does up play out? Like he had no children, Prince, right? Um, and there is a sister, but somebody else came into the picture, the SME who claimed to be a son. How does that work? I mean in the light of the car, what went wrong? That was not settled. He should’ve had at least the living trust if not multiple. Apparently not.
Speaker 2 32:32 Yeah, no. So, so everybody’s vying to be the nearest relative of course, because a child is a knee more near relative than a sibling. So the child would inherit first. So that would be first in the hierarchy. Correct. So there, okay, so, so write this down. All right, so you have a child is first. So then from there, if there is no children, well a spouse is also in the mix. So equals spouse and children’s split. But not, not necessarily there. There’s some caveats there, but just there’s a dotted relationship between the children and the spouses. And um, so for example, let’s remove this. The spouse, if there is a child, the child would inherit all before a sister or a brother, a sibling would inherit the brother and sister would get nothing. Child, child, we get everything. However, if there’s a spouse, spouse and child would get at the same time they, they split unless it’s predetermined, unless it’s pretty determined.
Speaker 2 33:36 And then there are students that will be a will is right. There are some caveats there. And because we can have children from a previous marriage, we can have adopted, we can have, uh, we can have natural children. Um, so there is ending of the culture in the part of the country you’re in. Right? Exactly. So there is some caveats, but at the same time, spouse and children would inherit at the same time. Whereas that’s not necessarily the case. Now, if we have no children, no spouse, and we have four siblings. Okay, so all four siblings would take equally. So we’re going down the food chain here. So siblings, what happens that there are no siblings? We go up to parents. Parents are third. Man, I don’t stand a chance. No. Okay. Parents there, you test me here, it’s okay. Just take your time. I know you’re, you’re, you’re jogging your memory and now I’m just curious, you know, like, I know it’s so okay while you do that.
Speaker 2 34:37 So there’s this whole other thing about, okay, so then what happened? The, the, the, you know, the Michael Jackson state, right? And what happened there? He died. He was 51 years old. It just, it just seems like all these people are dying at 51 Prince was 51. I know Michael Jackson, right. Was 51. There is a couple of other celebrities that were 51, two as crazy. I mean, call me crazy, but I know this is not the kind of show, right. But so we have another situation and there’s, there is a PA, they were parents, right. What happened? Do you know about this? His situation? No, I don’t. I don’t because $100 million at stake. I think he had a state planning taken care of, but I think he did have children. Yeah. And he did have children, but we also got involved with evaluations. I know. Um, I actually just read recently that, um, never lands on the market. It’s been on the market. They’ve dropped the price we foreclosed
Speaker 1 35:38 or who cause he was, it wasn’t this array. It was a financial mess.
Speaker 2 35:43 Yeah, it was. And the property was, the property itself was, uh, going into dilapidation.
Speaker 1 35:49 But you know, here’s an interesting business concept. let me take a little sidebar. If you’re pulling in hundreds of millions of dollars a year, right on the top line, if you’re running a business, but you’re also spending hundreds of millions of dollars a year and you have no profit, right? Here’s the irony. He was always borrowing against, you know, his assets. You know, he’s royalties, he’s a digital assets, he’s music library, et cetera, right? He actually at some point had even acquired the Beatles library, part of the Beatles library. Remember the whole thing, right? So they were producing income, but he was spending a faster, so he kept borrowing against this assets. So he guess what happened after he passed away? There was no more spending, but the income kept coming. all right, this, this is passive income. With this amazingly huge music catalogs with music playing all over the world, which is why it’s of more value now because, so he actually actually more ease, worth more dead than alive.
Speaker 1 36:45 Right? So there’s a lesson here for business owners. You know, I’m always, and I’m sorry, I’m going on a tangent. I’m going on a tangent. Please go. If you are building a business in your, understand what the strategy is and you understand your business model, which we talked about another show, understanding your business model so you can scale it. When that happens, you have a winning formula, you will, your revenue and your gross profit will outpace your expenses. So you have this ever-increasing net income, but you have to understand your spending patterns, right? It is not really the net sales, it’s more on the gross margin, gross profit. Um, you know, so back to, you know, so I just wanted to kinda, uh, you know, have a teachable moment, right? I’m always talking about the concept of what does it look like, you know, what are the key performance indicators? And I know we’re overlaying this whole thing about which I V I’m learning a lot about, you know, to probate and wills and, and in OBS succession, succession planning.
Speaker 2 38:00 It is, it really is. And it’s the final chapter. I mean it’s, it really is the final chapter. Oh my God, we’re singing now. I won’t sing. I promise I’ll save everything. Totally. But anyway, 1985 and you know it and I know, and that’s the hilarious part. That is the hilarious part. Anyway, so it is absolutely is the final chapter because we have planned, you know, a theoretically every step of the way and then to alleviate
Speaker 1 38:35 the unknown
Speaker 2 38:36 and the disaster, you know, we could easily plan and easily take care of this so that it doesn’t have to go through the probate process, the probate costs, the cost of doing a probate is based on the gross value of the estate. And I know, Oh, it was probably six, eight weeks ago that we talked about this. Um, that save for example, there, um, you have a house, let’s just say that’s the only asset of, of the business. And, um, the administrator of this state is managing it and you know, it was going through the probate process and wants to keep the house for the heirs. The heirs decide they want to keep the house. Well, probate fees, legal fees and costs are statutory. They’re built into the law. It’s a particular percentage. Um, and so for example, if you have a, uh, estate valued at a $250,000, let’s just say, well let’s just say for $200,000, an even 200 . So remember it’s the gross value. It’s not, remember gross value, okay? It’s the gross value of the house, not the, not the equity. So if you have a house in California and its value valued at $200,000, what it’s going to cost in probate fees and an executor fees are the fees for the administrator is $14,000. That must come out of the estate. If there’s not money in the estate or the administrator doesn’t have that money in their pocket, the court will order you to sell that house.
Speaker 1 40:10 Got it. All right, everybody, stay tuned. I know we’re in a, we’re going to leave you at a cliffhanger. We’ll be right back. Business and legal talk with your Claudine. We’ll be right back.
Speaker 4 40:39 All right, we’re back. I think Claudine, you did a great job in the last second. I want to give you props. I want to give you kudos. Here’s the good CODOs right here. See if with two thumbs up, great job. I mean we work well off each other.
Speaker 1 40:55 And I think, um, for the audience member if you know, as, as you’re listening to this is it’s, it takes a village to get all this thoughts processed. You know, though these angles and all these things that you have to worry about as a business owner. Not only do you have to worry about being profitable and growing, having a sustainable business, but also what’s going to happen later in the last chapter. So
Speaker 2 41:17 one of the things that, that I really want people to understand about the difference between probate and living trusts, um, and is that probates are public. Um, and, and you would be surprised, uh, you know, the, you know, the public notices, which are what sustaining a lot of, uh, newspapers that don’t write news anymore. They just basically publish it. The back pages. Yeah. And you’d be surprised how expensive are the one of what we called the newspaper. Cause we had to run a public ad here recently and it was down in Southern California, I think Lancaster, $320 to run this ad. It was, you know, just whereas for example, we have newspapers around here that run them for roughly a hundred. Um, but that’s because they don’t do much more any more than, you know, run public notices. But with that being said, um, people come out of the woodwork, you would be super surprised how many people come out of the woodwork.
Speaker 2 42:09 They see those notices and they say, Oh, Joe Smith, you know, I did work for him and he owes me and you know, becomes a creditor of the estate. And that’s, um, that happens. It does happen. And it happens. It happens with foreclosure properties too. We see it happening that there are unscrupulous people. Um, I’ve seen it mostly in Southern California that they go record mechanics liens against properties that they know are going into foreclosure, that they can see that the mortgage is a very small mortgage or the amount owed against the property is very small and the properties in a neighborhood that is likely to sell for more than what is owed. I have fought four of them. Uh, two of them, the same, the same character had, he had gone in and created, um, a phony contract and signed the property owner’s name to the contract and um, claimed that the property owner owned, uh, owed $50,000 and went and recorded a mechanics lien per $50,000.
Speaker 2 43:06 And the owner of the property had never even met him and had they not had, uh, us onboard to, to fight those liens and to examine those liens, chances are she was an elderly one boat. Both of them were elderly folks. Um, chances are that money would have been paid by the trustee, the foreclosure trustee. Um, we see that happening also. Um, so all of this is very public. All of the assets are court records are public records. And so it’s a very, very public process and you have to kind of, um, you can get into a point where you’re batting down, um, some unscrupulous people just going through that process. Um, probates, you can expect it to take at least a year, at least a year if everything’s smooth. And there’s really not a lot of assets. Um, year and a half is very, very common. I have a client who’s, um, entered into their eighth year, um, it was a large largest state.
Speaker 2 44:01 It was clear what the instructions were. There was a will, uh, because it was a will and not a living trust. It went through probate. Anyway. Um, the administrator is one of the children and he now lives in Europe and doesn’t really, he got his disbursement and there, cause there, there can be disbursements along the way. Um, but there’s still, you know, a couple million dollars that need to be distributed and need to be cleaned up. And, and the accounting firm that was hired was named in the will. It was a good friend of the deceased. Turns out the accounting firm was not on top of things. And then the administer Shrader of the estate had to petition the court to bring in another accounting firm. And that in itself is a huge process because now you’re, you’re asking the court to do something that is against the will, um, which is a huge, huge process.
Speaker 2 44:54 Um, the courts don’t want to do that. They want, you know, we’re going to adhere to the Willis as closely as possible. Um, and that just extended, um, probably ultimately by years, uh, because the accounting kept being the, the beneficiaries kept saying that this accounting is not correct. It’s not correct. It’s not correct. And then there was argument about it and then it was ultimately we got it requests, um, permission from the court to be able to bring in another accounting firm. So it can be grueling and excruciating. And when the beneficiaries are sometimes, you know, needing the inheritance or they would like to take the inheritance during their lifetime and use it for something or invest it in a business, those years are ticking away. Ticking away tick that time’s ticking away. Um, I really see some really messy situations when we have spouses. Um, second marriages, third marriages, and um, I have a client we’re working with who, um, is on a second marriage and you know, dearly loves his wife, but he also loves his adult children and wants to provide for his adult children. You could feel that you could feel that way. You could feel that right away. And, and you know, wife also works in the business and, um, adult children work in the business. And so how do we do this?
Speaker 1 46:15 You know what, I go with all of this and I know we only have a few minutes. I mean, the hour’s gone by. There’s a lot that has been discussed. This, that I land on the business owner, excuse me. So we have a business with an, I’ll say in my case, almost a hundred percent closely held family businesses, right? Isn’t that what we all want? If we can, if we can help, right? We don’t want outside input. We don’t want the public, you know, if you go very, very few, very small percentage of all businesses actually go that route of going public. Uh, the vast majority of the American engine is small business owners. Absolutely. There’s 28 million businesses in the U S and sadly, um, I recently, you know, was reading about this 70, 78% or higher are barely making it or going under, right? So it is a real thing.
Speaker 1 47:20 So you have this closely held family businesses that where you have to deal with this. You don’t want to wait until something happens and you know what? Nobody prepared to die. I mean, who, okay, let me go ahead and see. And about three weeks I’m going to get into an accident. What should I do now that nobody knows? Right? We don’t know what’s going to happen. So he behooves the business wanted to be, it started really figuring out where it’s about. It’s about what Y w Y been saying, disaster preparedness. How are you prepared to take care of your family? If you are the business owner in the site, you know, in the larger mind, your net worth is tied up to your business. Now, you may have other real estate or other assets that hopefully income producing assets tied to your net worth. But you know, for most of us, it’ll be your business. So are you prepared? And what are your, um, final comments on this, uh, Claudine that you won in, aside from picking up the phone and calling you today, but perhaps not today, but it’s Saturday, but, right, right, right, right.
Speaker 2 48:17 I’m gone. Please don’t call it. Well, if you call today, probably gonna get a voicemail once in a while. I’m there, but oftentimes they don’t answer. Um, honestly, the takeaway is, please don’t be afraid to PA to plan for the final chapter. Um, because most of us business owners are working day in and day out to keep as much money as possible. Use that money, use those assets to, uh, move our families forward. Um, and when the government automatically steps in and takes it and the government takes control of it, whether it be through the state or whether it be through the franchise tax board or whether it be through the broke probate courts, um, you’re allowing the state to step in and um, they do the best they can. The probate judges, the, the folks that work within the system, they really do the best they can.
Speaker 2 49:06 Um, but family members, um, and, and unscrupulous people have an opportunity to come in. And by the time it’s all said and done, there’s very little left. Oftentimes, um, prepare for this, take the time and go get a living trust. Um, take the time to plan it. Even a will, a probated will is far better than a probated estate that has nothing. Um, you know, it, well, I would virtually say 99.9% of time, it’s better to have a living trust. Um, living trusts are private. They’re not recorded. There’s no probate, there’s no notices run in public newspapers.
Speaker 1 49:45 It’s a, it’s a contract and you’re help people with that.
Speaker 2 49:49 Oh, absolutely. Absolutely. Absolutely. We give us a call, we can definitely help you out. Um, it’s all, for all intents and purposes, it’s a very low cost in the scheme of things. Um, it’s, it’s really, really a good value. Um, but it, it helps you walk through the steps of thinking about it and making those decisions.
Speaker 1 50:07 Ounce of prevention is worth a pound of cure, right? Pound of cure all day long, every day. And now, so prevention is, war is more than a pound of cure. So, um, it was been great having you on the show. Uh, this is not your typically hype show, but it is, it is a real show. And inL a would be, we’ll be remissed if we didn’t talk about all their aspects of business ownership and we left this out. I think you need to know everything, the good, bad, and the ugly of really being a successful entrepreneur and business owner. It has been a pleasure having you on the show. I wish you all a great weekend. And we’re siting out business and legal talk with Leah. Claudine, we’re out. Thank you.
Speaker 0 50:58 .