Tuesday, November 10, 2015

The Law - Theory and Reality

Our legal system in theory, and in practice, are two different things.  You can waste a lot of emotional energy decrying "injustice" - or you can understand how reality works and plan accordingly.

I was attending a law conference on Trusts in Savannah last week.   I'm not about to go into elder law or anything, but I did need the Continuing Legal Education Credits, and Savannah is a nice place to go.  It was interesting to learn about.   As I have noted before, for many of us "little people" a trust is really an unnecessary complication.   I actually talked to a Trust Attorney in Savannah once, and explained to him my portfolio of investments.  His response was, "Call me when you have some real money."

And that was good advice, too.   Setting up complicated trusts can be expensive - in terms of attorney's fees - and also complicate your life unnecessarily.

Mark's family was a little trust-happy.  His Grandfather set up a trust, his Grandmother had a Trust, and his Mom and Dad had a Trust.   The reason they did this was to avoid the Gifts and Estate tax, when passing an inheritance on to the next generation.   Back then, the cutoff for the Gifts and Estate tax was much lower.   Until fairly recently, it was as low as $750,000 (or 1.5 Million for a married couple).  Today it is over 5.4 Million and is raised every year to account for inflation.  Any amount below that is exempt from the Gifts and Estate tax.

But since a lot of people set up these trusts when the exclusion was lower, a lot of trusts are still floating around - and complicating matters for heirs when estates are settled.

Why was the Gifts and Estate tax cutoff raised so high?   Two reasons, I think.   First, people could go to lawyers and set up Trusts and get around the tax, at least in part.   Second, since we now have IRAs and 401(k)s to fund our retirement, average middle-class people now have a lot more money laying around in terms of cash.   In the olden days of my parent's generation, you had little in assets and fat pension plans - which equated to the same level of wealth, but did not result in any inheritance issues.

But a lot of older people who made their money back in the day set up these Trusts to avoid the Gifts and Estate tax, and today, well, these Trusts might not be necessary, as the cutoff amount is now so much higher.   In Mark's case, the Trusts just ended up being an additional hassle in settling the Estate - they provided no financial benefit (and lest you think he is a Trust-Fund Baby, bear in mind that $1M divided by 11 is not really a big pile of money!).

Of course, there are other reasons to set up a Trust.  Medicaid Trusts are still a real issue, but as one attorney put it, he doesn't set those up for anyone under 65, as they are irrevocable Trusts, and you'd better have one foot in the grave (or the rest home) before you make such an irrevocable commitment.

But the course got me thinking about the law and how it really works versus how it works in theory.   During the break, for example, I discussed with the instructor, my late Mother's "anti-Bimbo" Trust she set up ostensibly to prevent my Father from blowing her money on cheap hookers, and to leave an inheritance to us kids.   In theory, it should have worked.   In practice, it did not.

The Trust allowed for income to go to my Father, and had a boilerplate provision that he could take out money from the Trust for his care and maintenance if needed.   As both Beneficiary and Trustee, he was the fox in the henhouse, and his children - the remaindermen - were the chickens.  However, in theory at least, under the law, he had a  fiduciary duty to us, and he could not just use the Trust account as his personal checkbook.

In theory.

In reality, it was only about two years into the deal when he decided to withdraw nearly 1/4 of the funds for some cockamamie scheme that had nothing to do with his own care and maintenance.   He tried to cover the "fiduciary duty" aspect by getting permission from the remaindermen - his kids.  Of course, I objected, but he went ahead anyway.  He breached his fiduciary duty - the highest standard of duty under the law - to his own children.   Surprised?  Don't be.  This is the guy who euthanized my cat when I went off to college.   He hated cats.  Didn't like me much, either.

Now, in theory, I could have brought suit against him for breaching his Fiduciary duty under the Trust document.  In theory.   The problem is, the amount of money in the Trust was only about $400,000 which is not a lot of dough in the greater scheme of things (it would generate $20,000 a year in income, in retirement) and my "share" as a remainderman in the trust would only be about $100,000.

Given the legal fees involved (as I would have to sue in a foreign venue and hire a local attorney) it would not be worthwhile, unless I just wanted to piss him off.   And he could hire a lawyer and use the assets of the trust to defend the suit.   It would be a lose-lose situation.   The net result would be the same - the trust would be squandered and nothing would be left.

Sometimes, the best "legal" advice is also personal advice.   And a friend of mine who is an attorney in his jurisdiction said it best - "just move on with life and learn from this."  Good advice.

In online forums you tend to see all the time people saying, "You should sue them!" or "We should bring a class-action suit!" when some injustice is perceived.   However, while you may have a cause of action to bring suit in theory, the reality of the law is that unless the damages are huge, you really don't have a realistic case, as no attorney would represent you, or if they did, you'd spend more on legal fees than you would on the damages.

So if the dry cleaner ruins your suit, you could sue them, even in small claims court.   But the hassle of taking time off from work, spending hours in court, and whatnot, is probably more than the suit cost.  Even if you won, you might have to spend even more money enforcing the judgement, if they refuse to pay.   The net result is, you come out behind and your suit is still ruined.   Give them one star on Yelp an find a new dry cleaner.

Or maybe decide that you don't need to wear fancy clothes that need to be dry cleaned.   Because when you get right down to it, oftentimes the troubles we get ourselves into are a result of our desires to have fancy shit that we really can't afford.  If you chose not to consume, you are absolutely 100% guaranteed never to be ripped off.

If you don't have a smart phone, you'll never be whining about the cost of your plan or the data caps.  If you don't have cable television, you'll never complain about rate increases.   If you don't buy a fancy car, you'll never complain about the cost of repairs.   And so forth.   When we decide we "have to have" something, it puts us at a disadvantage and we end up screwed.

Because you see, while in theory, under the law, you may have rights and you may be right.  But for trivial amounts of money - under $10,000 for example - the cost of a lawsuit exceeds the benefits of suing.

And that is why con-artists always pick numbers under $10,000.   You may hurt from losing $2500 in a Craigslist scam, but you wouldn't sue to get the money back, even if you could find the culprit.   It just isn't worth it.

Invention brokers, who operate openly in the United States and could be sued, rarely are.   Why?  Because the $5000 they ask for is not a lot of money, and no Attorney would take such a case as the amount of damages is trivially small. In the few rare instances where people have sued invention brokers, the companies settle quickly, with the proviso that the victim not talk about his experience.   Or they re-incorporate under a new name in a new State  - leaving the victim with no one to sue.  But most people just walk away and take their lumps and then harbor a grudge against America for not protecting them from their own foolishness.

Even class-action lawsuits are of little use.   As I have noted before, they do little other than to line the pockets of the attorneys involved.   I got another postcard today from a class-action lawsuit attorney.   It was over that "free cruise!" scam, and they were suing under the Do Not Call registry act, which can charge up to $5000 per call.    Good luck with that - I am sure the telemarketing company has already folded and moved on to new fields - under a new name and new address.

I got an e-mail from an idealistic young Law Student with regard to my Inheritance Scenarios posting.  He was incensed that I was "giving bad legal advice" in that I pointed out that people can steal from Estates, hijack inheritances, and whatnot - and it happens all the time.   Of course, I was not "giving legal advice" (which is specific to someone's fact scenario) and I hesitate to give advice to anyone (as they never take it, or if they do, they twist it all around to do what they intended to do all along).  But he was not a very smart law student.   He had this idealistic idea that the law was absolute and that right was right and wrong was wrong.   How quaint.   Quaint, but dangerous.

Yes, it is good to be idealistic.   But it is also good to be realistic.   It is against the law for someone to steal your bicycle.   But if your bicycle is stolen, odds are it will never be recovered, and a manhunt for the culprit will not take place.   At best, a bored Police Officer will take a report so you can file a claim with your insurance company.   In places like San Antonio, Texas, they have so much petty crime that you just fill out your own report, online, to save Police manpower.    Sorry to say it, but the cops really don't give a shit about your crap being stolen.   And once again, owning less crap is one way to avoid being victimized.

"Well," you say, "That's pretty harsh advice."   Welcome to my blog.   The world is a harsh place at times, which is why, when you meet decent people, you should hug them close to your breast.   There is a lot of unfairness in the world and a lot of injustice.    And most of it isn't likely to change in your lifetime, or indeed anyone's.  Why?  Human nature.   People are pushy, nasty, selfish, and greedy.   And not other people, but all of us.

And that's why, when you find an honest merchant, that you do business with them and not the guy with the loud billboards and TeeVee advertisements, who promises the world and delivers nothing.   If people would just stop doing business with crooks, a lot of crooked practice would simply go away.   But for every honest car dealer, there are ten crooked ones - making a boatload more money.   And folks gravitate toward the flashy ads, the promotions, and the "sales" like moths to the flame.   It gets so bad that the last honest guy in the market goes bankrupt, and he sells out to the crooked competition.   Or, he realizes that the only way to stay in business is to offer the same shitty (but profitable) deals his shady competitors are offering.

We create the world we are in.   People bitch about the rates cable companies charge - and then pay the bills every month, for years on end.    People complain about being "ripped off" but continue to engage in business deals with shoddy crooked folks.

And no, it isn't the law that failed them, it was them.   Payday loan companies would go out of business overnight if everyone realized how crooked they are.   Yet, when you attack companies like this, their most fervent supporters are their victims.

This is not to say there isn't hope.   For-profit colleges such as "Phoenix" University (I am not sure which term should be in quotes!) are facing severe financial hardship - if not bankruptcy - as folks start to realize that a college that advertises on a billboard might not be such a swell deal.

Yes, we can protest for student loan reform.   It likely will never happen - or not to the extent people want.   But the real "solution" to the problem is not a legal one but a human one.   If people stop making bad bargains, they will stop being ripped off.  And if you are not sure if something is a bad bargain or not, then just consume a helluva lot less.  Because chances are, the crap you think you need in your life is just another bad bargain - and your legal recourse, once you figure it out, is realistically zilch.

P.S. - and even when you have legal recourse, you are rarely made whole, and the whole hassle of trying to be made whole is more effort than simply seeking out a honest deal, or just consuming less.  Justice begins at home!