Happy Holidays, and Year End Thoughts

Courtesy, Griswold Family.
Another year is almost in the books. As we all spend more than we probably should on gifts, tacky holiday sweaters, and those gifts you thought you bought for someone else but just decided to keep, it is always good to sit back, reflect, and make sure your affairs are in order for 2013.

Before you kidnap your boss and his wife, because that Christmas bonus for your new pool didn't come through this year, let's go through a checklist:

  1. Are your estate planning affairs (wills, trusts, powers of attorney) in order?
  2. Have you checked and reviewed beneficiary designations on bank accounts, life insurance policies, and retirement plans? (and paid premiums so your plans won't lapse.)
  3. Have you properly documented all your potential tax savings and have you filed any calendar year tax returns?
  4. Have you finalized and documented all charitable contributions for the calendar year?
  5. Have you contributed to an employee sponsored pension (or 401K), or maxed out your contribution to an IRA/Roth IRA? (It's one of the last good deals out there, if you can spare the money).
  6. Have you set up a designation of guardian for any minor children, in case something happens to you?
  7. Have you inventoried any safe deposit box, personal safe, or other location where you keep valuables, and have a copy stored off site?
  8. Have you digitized or copied important financial and personal documents, family pictures, and the like (...your itunes library) in case you need a backup?
  9. Are you travelling? Have a backup copy of your passport and other essential documents (I email a scanned copy to myself, where I can access it via the internet if I ever need it) and checked with credit card companies and cell phone carriers so you don't get his with surprise fees?
  10. It is getting down to the wire, but have you thought of gifting or utilizing the current estate and gift tax exemption amounts that expire at year end? (Good luck finding a lawyer to work on this between now and then).
Most importantly, enjoy the holidays. Be good to each other, even though times are tough all around, and there might not be as many gifts under the tree as in years past. Don't even THINK the words Fiscal Cliff. 

And if the whole Mayan Apocalypse thing is real, (which, even the Mayan's don't care about) then thank you for spending some of your last days reading our website.

See you on the other side, one way or another.

 


Charitable giving: what's it worth to me?


Right now, we have an unlimited charitable deduction at death. During life, if you itemize, you can deduct charitable gifts up to set limits, based on income. Right now.

Right now, non-profits, NGOs, 501c(insert number here) entities are plentiful. They are churches, hospitals, and universities.  They are your United Way, your Red Cross, your Greenpeace. Do you care about humpback whales? Maybe not. Do you care about finding a cure for transverse myelitis? You should, but probably not as much as these folks do. All these things cost money, and a lot of it.

On the cover of today's Dallas Morning News was this headline: FISCAL CLIFF- Nonprofits fear donors will cut back on giving if agreement caps charitable deductions. Not to mention, GOP SEEKS FALLBACK IN TAX DISPUTE, and LONG TERM JOBLESS FACE BENEFITS LOSS. See a trend here?

The scene isn't pretty: these folks don't have food or shelter. Who is going to take care of them? They can't get government benefits or housing. They are not really part of the 99%, or even the 47%.

But that's not the point. The point, which I have made in other discussions, is when the economy is bad, people give away less. Take away tax incentives to give away money, and well, its not easy to figure out what will happen.

"Lets fix the loopholes in the tax system." Ok, great. But what are they? If you ask the GOP, this is what you get.  The Democrats don't do nonprofits any favors either, as the President has advocated for capping the deductions as well, and part of their spending cuts is projected to affect grants and aid to nonprofits, as well. Throw in any little bit of a recession, and...

Who is going to end up paying for all these programs, that, we all used to pay for? Not us, not the government (which, indirectly is still us). So they go away. So we don't have anyone fighting Japanese whaling boats. Big deal, until we run out of whales. So we lose some dollars that were going to find a cure for alzheimers and multiple sclerosis. Big deal, until your family is affected.
So the soup kitchens run out of food, and have to turn folks away. Big deal, until "those people" turn up on your doorstep, have to steal because they are hungry, or worse.

The point is, we all lose. It is not about small businesses, the middle class, or the wealthy. When you listen to the pundits on the news talk about "who is getting hurt the most" in any of these fiscal cliff and tax deals, its all of us. Its the whales, it is those with incurable diseases, and its the homeless.

But it is also the middle class family of four, who pay their taxes, give to their church, and do everything by the book.

Enough soapbox. My point, is that we are all vested in this fiscal cliff/tax nonsense. Before you go championing "close the loopholes!" or "raise/decrease taxes!", take time to think what that really means for you: one number might go down, but it might end up costing you more on the back end. The tax system is a mess, no question. But "fixing" a system that we have tried to perfect for as long as we have been a country is no small task.

Here's a holiday toast to them getting it right.


Buffett to the Rescue

Warren Buffett may be my new favorite bazillionaire. IF he wasn't already. He just gets it, and even if I am still skeptical on his pledge to the Gates Foundation, he knows how to talk the talk.

Just read his Op-ed piece in the New York Times from a few days ago. And it's not about his secretary. Discuss.


Fiscal Cliff, and What's next

Happy Thanksgiving and Black Friday. Instead of Cyber Mondaying, take some time to educate yourself about the state of the economy.

First thing's first. I often get asked "what's this fiscal cliff everyone is talking about."

If you already know, bear with me.

The basics:

When times are economically good (like the 90's, and early 2000s) we (the government) has lots of tax revenues, so it can technically cut taxes (makes people happy) and spend all kinds of money on programs and defense and all that good stuff (makes government happy). When times are not so good (like the last couple years) we (government)  don't have enough money to keep paying for all those things we used to, but its the government, and it is really hard (read SLOW) to change our spending habits. So we over-extend, rack up debt, and get in financial trouble.  Recessions happen, people lose their jobs, markets crash. People's pensions get cut in half.

Enter year end 2012. Here is what happens on New Years:

  1. Bush Era Tax Cuts expire at year end.  (ESTATE TAX GOES BACK TO $1 million)
  2. Payroll tax cuts go away, Alternative minimum tax changes, other tax breaks go away.
  3. Budget Control Act of 2011 (remember the Debt Ceiling?) automatic spending cuts kick in. 
  4. Obamacare taxes take effect (increases capital gains tax, dividends tax)

Analysis:

These, amongst others, are the forces pushing the economy and nation up to a "fiscal" cliff.  The general concept is taxes go up and government spending gets automatically cut. The question is what happens when, and if, we go over the aforementioned "cliff."

The Republicans don't want to raise taxes (although they are wavering in their anti-tax pledge) and want "entitlement program" reforms, and the Democrats want to raise taxes and keep their "entitlement programs" (read Obamacare, social security, etc.)

If we go over the cliff, the markets should crash, unemployment should rise again, and we should  have another recession. Or would we?

The last few years have been lean, no question (unless you are one of these kids). These economic reforms sure seem like an anti-stimulus package. But is this what the country needs? We might just cut our deficit, clean up entitlement programs, cut the pork, and prevent having to do this all over again a few years down the road. Tough call. I don't think anyone can honestly say they want to pay more taxes, but a good many don't want to see our debt hamstring the next generation either.  Hopefully they meet in the middle. 

Take Away:

Ok, what does this mean for you and I. If you work in a government funded agency, (for example, scientific research funded by government dollars) you better hope these entitlement cuts don't come down: your job might be at risk. If you are one of the millions of retired Americans who did everything right, saved and maxed out your pension, you better hope the forces in Congress do not push us over the cliff. If your portfolio is still in tact after 2008, it likely cannot handle another huge hit. 

No one knows what is going to happen. However, many people are taking advantage of the current estate and gift tax exemption levels, as well as cashing in on the current, likely lower capital gains rates.  I don't think the estate tax will revert back to $1 million: that just hurts too many people. I do, however, feel the Obamacare taxes on dividends and capital gains will come into effect. Any financial planning based on the fiscal cliff fears is really a gamble, much like investing in the stock market (unless you have insider information, of course).

We have about a month to go. Time to place your bets. 


Thanks

Thanks for everyone who participated in our poll. Turns out, Jill Stein of the Green party was the overwhelming choice of our readers. The Harvard educated internal medicine doctor, twice arrested on her campaign trail (once in Texas for trying to aid the protesters of the Keystone XL pipeline) did not do as well nationally, however.

With the election over, the stock market in free fall (except the firearms and marijuana stocks, interestingly), and the "fiscal cliff" discussions approaching, there will be lots to talk about in the coming weeks.

Stay tuned, and stay classy.


Election day.



Big day, America.  This election is the most important of our lifetimes...How often have you heard that?

In reality, there is a whole lot on the table, at least if you believe the talk.

Women's rights, social programs, healthcare, "jobs", the direction of energy development, how we will address our national debt, and everyone's favorite, TAXES are all up for grabs. Not to mention the future of the Supreme Court, and the fallout that can happen if appointments go one way or the other.

But on taxes..

Obama Basics:

Extends Bush tax cuts, except for individuals over $200k and families over $250k/year. Capital gains and invesetment income taxed harder, Obamacare tax built into capital gains, increased dividends tax, potential limits on itemized deductions.

Take away: wealthy tax payers and those with substantial investment portfolios are going to pay more tax. Middle class largely spared.

Romney Basics:

Extends Bush tax cuts for everybody, cut rates an additional 20%,  if you are under $200k you pay no capital gains/dividend/interest taxes, repeal the estate tax. Pays for it by getting rid of "loophole deductions," which we are not sure what those are.

Take away: wealthy tax payers and those with substantial investment portfolios will make out like bandits. Everyone else pays their "fair share," with the middle class coming out about the same and the poor not getting much extra relief.

I found an interesting calculator that will tell you how each candidate's tax plan will affect your bottom line. Try it for yourself, here. No idea if it is accurate, just a fun tool. Interesting to see what happens at lower incomes, and extreme upper incomes, though (start at $500k, then keep going up. See a trend?)


I don't really care who, or what you believe in or support, and I will not tell you who to vote for. Mainly, because neither candidate has chosen to request an endorsement from Yourtexasestateplan.com.

Also, while you are here, vote in our scientific straw poll on the right.

Just go vote. It is your right and your duty.  Then lets talk. About taxes.

 


Happy Halloween...Can I write off candy I hand out?

Full moon, terrible storm ravaging the Northeast, election day rapidly approaching...what could go wrong?

The real question on this all Hallow's Eve is:

Can I get a tax deduction for the candy I give out?

Actually, yes.

If you are an individual, no, not at your front door. If you are a business, yes, if you link it to advertising/ordinary and reasonable business marketing type expenses.

However, you can also just be lazy at home, and send your leftovers to our troops. Apparently this DOES count as a tax write off for an individual. Learn how here.

Whatever you do, stay safe out there. And just for fun, send some well wishes to this poor little girl.
(video scouted by L. Stocker)


FLPs and the Keller Case

FLP= Family Limited Partnership. It is a normal Limited Partnership, except most or all of the members are in the same family. Straight forward enough, right?

People make FLP's for many "business reasons," because in the eyes of the government, you have to have a "business reason" for them to recognize the FLP. The real reason most people make an FLP is that you can use it to discount the value of your assets, keep them in the family, and easily and effectively transfer these to your next generation.

Here is the basic model:

The Smith family are farmers. Simple folk, but they have done well, and own their own 10000 acre farm with a thriving cattle and ranching business on it. It's now worth $100 million, and Ole' man Smith is on his last legs. Ole' man Smith transfers the business into an FLP. Nothing changes, it is a non-event for tax purposes. He now does not own the farm though: the FLP does. He owns 100% of the FLP. Now we can go to work. Ole' man Smith transfers 40% to his spouse, Granny Smith. No tax, as it is between spouses.  Then, he uses he and Granny's gift tax lifetime exclusion amount  (~$10 million) to transfer an additional 10% each to his children, Steve and Kevin Smith.

If Ole' man Smith died now, what did he own? A $100 million farm? Well yes, obviously, right? Wrong. He had a 40% interest in a FLP. That's it. What's that worth? Good question, to which the government lets you ask more questions: could he sell it? Did he have control? Was there a market for this type of thing? The answer to all of those before the FLP was yes, and if he died he would have paid tax on a $100 million business. Now, after the FLP, the answers have changed. He can't really sell it, he doesn't own it all. He can only sell what he owns. No, he doesn't have control, he has less than half. Is there a market for partial interests in partnerships? I don't know of one. All of these add up to a $100 thing now being worth something a lot less, usually around 30% less.

And that is just the valuation discount for the underlying assets. Further, each gift of a "percentage" of the FLP is discounted in and of itself, so that 10% gift to the kids is really worth 30% more than a straight cash gift would have been, allowing you to leverage your gift tax credit and annual exclusion amounts.

So a couple pieces of paper just saved Ole' man Smith's estate millions, you can use the FLP to legally and easily transfer more to the kids, and as a plan for the business in the future. Easy right?

It gets better. The 5th Circuit Court of Appeals just upheld a case, Keller v. United States (S.D. Tex. 2009), where a wealthy Texas widow who formed a FLP but failed to fund it with the $250 million in corporate bonds she owned before she died. Her estate then paid $147 million in taxes. Big hit. A wise advisor then attended a Continuing Legal Education course, where they learned that intent to fund is enough to show evidence of a completed FLP. The estate then funded the FLP, and took out a "loan" to pay the taxes, and sued for a refund.

At trial, the court held that the intent to form and fund the FLP effectively established the partnership, as intent is good enough under Texas law. It also found she created the FLP for business purposes, not just for tax and valuation uses. Here is where it gets really good: the court upheld a total  of 47.5% in discounts on the value of the FLP assets. 47.5%! They also got a refund for the interest they had to pay out on their "loan."

Take away: FLP's can be amazing things. They are one of the last, great, IRS approved vehicles to use to your advantage. However, they can and will be disallowed if you do not do it right.


Grading the Presidential Candidate's Tax Plans: Romney Part II

In an earlier post, I highlighted how MittRomney.com did not have a comprehensive explanation of the Governor's proposed tax agenda. Well, now it does, so we can evaluate it more fully.

If you happen to be in the 47% of people who now, as if there was any doubt before, are definitely not voting for Romney, then read feel free to skim this and find something better to do. But if you are still on the fence, lets press on.

Romney's plan begins with a quote:

"The best course in the near term is to overhaul and to dramatically simplify the current tax code, eliminate taxes on savings for the middle class, and recognize that because we tax investment at both the corporate and individual level, we should align our combined rates with those of competing nations. Lower taxes and a simpler tax code will help families and create jobs."

(Mitt Romney, no apology)
Why the need for "no apology," I'm not sure. Sorry to the IRS employees who will be out of work in a new, "simpler" tax environment? I doubt it.

THE BASICS:

Romney's plan is the basic republican platform of late: cut income taxes, kill the death tax!, make us competitive with other nations so we quit losing corporate tax dollars to overseas havens, simplify the code. Ok, sure. Built in are jabs at the President's system: that we don't need to raise taxes if we cut government, and he will cut spending too.
 
 
ANALYSIS:
 
Income tax:
 
I don't have an answer for raising/lowering taxes, except I am anti-national deficit, and we need to raise money somehow. If that means cutting government spending, great. If that means paying more taxes, fine. Both, so be it. I hope whoever gets elected knows what they are doing, because we are in trouble. Taking tax increases off the table entirely, however, I think is very narrow minded thinking.
 
Mitt wants to repeal the AMT, and I agree. Mainly because no one understands the AMT.
 
Estate/death tax:
 
As an estate planning attorney, I love to hear candidate's position on the estate or "DEATH" tax. Here is Mitt's:
 
"Government should not tax the same income over and over again. The federal estate tax, also known as the "death tax," does exactly that by taxing the wealth that Americans have been able to accumulate after already paying taxes throughout their working lives. This tax also creates a series of perverse incentives that encourages the most complicated and convoluted tax-avoidance schemes at tremendous cost to all involved. Finally, it can have catastrophic effects when a small family-owned business, in the course of passing to the next generation, creates tax liabilities that the family cannot meet without breaking up the business itself. "

 
You know who pays the death tax? Next to no one. Yes, it can hurt the small family business, or the rancher/farmer. But a simple call to me (or other estate planner who is worth their salt) can fix that, and it has nothing to do with tax-avoidance schemes with tremendous costs. You know what are tax avoidance schemes, with tremendous costs? Stowing money in Luxembourg, or the Cayman Islands.

Don't get me wrong, under the current system, in today's world, I'm all about offshore tax havens. If I had $30 million plus, you bet I would park some of it somewhere else, just in case. But, you also have to disclose this stuff, and there are ways to do it right. Nothing illegal there. However, if you have $100 million plus, which Romney passes by without flinching, no estate tax means your family are kings for generations. No one can touch you, because you have all the money.

If you want to know why I believe in the estate tax, I'll send you the paper I wrote about it in law school. Email me. But here is the basic point:  If there is no estate tax, the rich get richer, and the gap between the classes never gets closer. Further, it is why so many of the mega-rich donate to charity: they want to choose where the money goes instead of just giving it to the government, and its a tax write off. Starting to make sense? Sure, Warren Buffett has pledged billions to the Gates Foundation, but has he written the check yet? No. Why? I have a sinking suspicion it involves the fact that if there is no estate tax, the Buffett's could buy most of Eastern Europe, build a big wall, and live till the end of time. The estate tax chops it in half, or more, at every generation. Not enough to bankrupt you, but enough to spread it around.

But that's not fair! That's socialism/communism/somethingism that is NOT capitalism! Maybe, but I strongly feel, until someone convinces me otherwise, that an estate tax is a good thing, at a reasonable, say $10 million, level.

Corporate tax:

Cut rates, make us competitive again, quit losing jobs overseas. Romney does have an interesting point, that the US is still on a "worldwide" corporate tax system, which causes re-patriated (money earned abroad back into the US) to pay a secondary tax above wherever it was taxed originally, and this is why some companies are parking their headquarters overseas. That way, the money never has to go back to the US, and pay the tax penalty. I agree, this needs to be fixed. We will see if he can get it done.

But
"corporations are people, my friend"! Yes, true. But they are not the people most of us see in the mirror. They are Bain Capital, they are Apple, the are Sun Microsystems. At the end of Romney's website pamphlet, Former Sun Microsystems CEO and founder Scott McNealy attempts to defend Romney's statement, and makes good points. Yes, we need corporations to keep jobs in the US, and to do that, tax rates must be competitive. But lets get one thing straight: corporations pay a pittance of our national tax revenue, and take the lion's share of the profits. Where? To people, indeed, but only a few people. Shareholders? Not really, its the founders and top executives, and that is where the profits stay. And stay, and stay some more, and even when an executive retires or leaves Google for Apple, they still get sucked out of shareholder's hands in the form of golden parachutes. Read the financial disclosures for the big oil companies, or whatever blue chip stock you might own: see how many of the highest compensated individuals are not on the payroll anymore. It's scary.

How many workers is a CEO worth? 2? 10? 500?

Source: Economic Policy Institute. 2011. [12] 
  Remember dividends? Yeah, me either. Where do all those profits go? "Investments, infrastructure." Not buying that. How many dividends has Apple issued? Exactly 1, for the last 17 years. Either way, executive compensation seems a little out of whack. Something to revisit at a later date.

The Verdict:

I don't love it, but it has some minor points that shine. The code does need simplification. Ditch the AMT. Romney is a business man, so maybe he would be good for our economy, and making America attractive to corporations again. However, straight out refusing to raise taxes is silly. I hope we do not have to, but we might, and he needs to accept that. Also, repealing the estate tax is not the solution, per se. If you kill that revenue stream and the societal benefits it brings, you better have a good plan to replace them. Overall, I give Romney's plan a C, for a small amount of good and new ideas, and a large dose of the same old Republican rhetoric that got us into this mess in the first place.
 


The Hidden Tax of the Affordable Care Act

Google Images
Maybe we didn't look close enough.


As of now, we still have the Affordable Care Act (AKA Obamacare). The Supreme Court upheld it, and most likely it is going to be a long-term reality. Let’s get used to it.

Now that we are passed the politics, we must look deeper. Healthcare does not pay for itself, so buried deep within the legislation (here, to be exact, or more specifically, H. R. 4872—33 Chapter 2A, Sec. 1411) is a bump in the taxes for earned income, and a 3.8% Medicare contribution tax on unearned income.

What it means:

  • Starting in 2013, high-income individuals will pay another 0.9 percentage points on earned income over $200,000 ($250,000 if married). The current rate is 2.9%.
  • Starting in 2012, those same individuals, estates, and trusts will pay a 3.8% Medicare contribution tax on UNearned income above the same threshold amounts.

Analysis:

You can get stuck with both, or one or the other. If you’re an individual taxpayer, the tax is 3.8 % of the lesser of the excess of modified adjusted gross income over the $200k/$250k threshold amounts, or net investment income.

For estates and trusts, the tax is 3.8% of the lesser of excess of adjusted gross income over the highest income tax bracket for an estate/trust or the undistributed net investment income.

Confusing? It is. Just know if you make over $200k or $250k jointly, and have investments, you’re gonna pay more than you would have this year.

This may seem like it will only affect the wealthy, but it is much more broadly reaching than that. Say you normally make $100k, and your spouse $100k. Good, right? What if you sell your house? What if you  sell some stocks, or have a good year with rental properties?

The UNearned (capitalized for hyperbole) income tax hits on more things than you think. The tax covers  nonbusiness income from dividends, royalties, rents, and interest, except municipal-bond interest; short- and long-term capital gains (think stocks, sales of land, etc.); the taxable portion of annuity payments; income from the sale of a principal home above the $250,000/$500,000 exclusion; a net gain from the sale of a second home; and passive income from real estate and investments in which a taxpayer doesn't materially participate, such as a partnership.

That is a really comprehensive list.

Examples:

Let’s try some examples.

  1. Example: A married couple filing jointly has $400k of adjusted gross income--$240k of wages plus $160k of investment income composed of interest, dividends and net gains from the sale of real estate. Because they have $150k of investment income above the $250k threshold, they would owe an extra 3.8% of that amount, or $5,700, in tax.
  2. Example: A trust with a $100k of undistributed net investment income would pay the 3.8 percent surtax on $88k as this amount that exceeds the threshold amount of $12k, yielding $3,344 in surtax.
  3.  Example: A trust has $50k in net investment income and needs to make $60k in distributions. The trust has two beneficiaries, poor guy and rich guy. Rich guy will get tagged with the extra tax, poor guy will not. One way to beat the system is distribute more out to poor guy, assuming both parties agree, and prevent the tax hit.

Take away:

We are in a deficit. We have a multitude of government entitlement programs, welfare systems, new healthcare initiatives, and are paying for wars on multiple fronts in the wake of an extended global recession, the likes not seen since the big one. Taxes are going to go up, they just have to unless something crazy happens. This is one of the taxes that will go up. It is a tough one, but it does not mean you cannot minimize the impact it has on your bottom line.


Medicaid and Medicare: A Basic Primer and Asset Protection Strategies

Found at http://www.andreolilaw.com/tag/cartoon/ ,
No author cited.
What, exactly, is Medicaid?
  • Medicaid is the name of a joint federal and state needs-based health care program. Medicaid was designed to help the needy have a means of health care coverage, and it also provides assistance with long-term care and nursing home stays.
What, exactly, is Medicare?
  • Medicare is a federal health insurance entitlement program for those 65 and over (with a few exceptions for the disabled and seriously ill) that is funded through taxes and payroll deductions, and provides coverage for doctors visits, outpatient services, and even prescription drugs. It will not, however, pay for nursing home stays past 100 days.
Why, exactly, do I care about any of this?

Hopefully, you and all your loved ones will live long, full, healthy, fully independent lives and never have to pay out-of-pocket expenses for care or medical issues, and never require assistance outside the family unit until your ultimate demise. Sadly, for most people, this is not the case. Be it a serious disability, illness, or lack of loved ones with the time, expertise, and patience to care for the elderly members of our families, taking care of a growing elderly population is a serious issue.  And it is expensive. Really expensive.

Without getting into the politics of Medi-anything, or debating if it will be there in ten years, lets just talk about the problems that can arise. The main issue clients find is that it can be difficult to qualify for Medicaid. The best thing you can do is to plan, starting yesterday. So start now.

Medicaid Planning.

Elderly people fall into 3 categories: rich enough not to worry, moderate means enough to easily qualify, and everybody else. Most of us fall into the latter of the two categories. Lets start at the top.

Rich enough not to worry:  Assuming you have $1 million or more in assets, you are probably safe to not worry about medicaid. You could give all your money away and qualify for medicaid, but why? You could pay for long-term care insurance, but it is really expensive. You could give some money away, and have medicaid as a backup plan. Still probably not worth it, but it could be prudent. Enjoy your golden years. If you get really sick, then lets talk.

Moderate Means: You still likely will be above the limits, but planning will not be difficult. Get someone qualified to help you though, you can always find ways to save a few dollars than don't have to be thrown away. Read on.

Everybody Else: To qualify for medicaid, there are two tests: the asset test and the income test. If you bust on either, you don't get qualified. The limits are exceptionally low: $2,094 a month in income, and $2,000 in assets. Think you can game the system?  You can, sort of, but the ways to do it are getting more difficult, and the government knows about all of them, so its not really gaming the system anymore. I'll explain.

Income: If you make more than $2,094 a month, you can set up a "Miller Trust" or a Qualified Income Trust (QIT). This is a trust that you sign over  all your social security and pensions and annuities over to, and everything in excess of the $2,094 limit stays in there. The kicker is that when the Medicaid recipient passes away, whatever is left in the trust goes to pay back the government for footing the bill. It is a bummer, but its fair.

Assets: Easy, just give it all away, right? You can trust your kids to use the money to take care of you. Not so fast. The government caught on to this one quickly, and set up penalty periods or "look back" periods of 6 months, a year, and now 5 years. When applying for Medicaid, you have to disclose any gifts made over the last 5 YEARS. That is significant, and why you must plan early. If you can get it out of your name before you need to qualify, great. But you better hope you trust your kids, or whomever you decide to park the money with. Remember, insurance policies (cash value), retirement funds, land that is not your primary residence, all counts against you.

How it works: You disclose everything you have given away on the application, and they divide the number by $142.92. The resulting number is the number of days you will be "penalized" and not allowed to start your medicaid eligibility. They used to do it by the month, now its by the day. The number comes from the average cost of a private care facility.

For some, this is fine. Get it out anyway you can. Better to the kids than the government. For others, this won't fly. You need care now. Medicaid counts certain assets as exempt: your house (if you truly are going to try and return home), a car, household furnishings, and you can pay loved ones for the time they spend taking care of you. $80,000 over the limit? Go buy a Porsche. Why not? You earned it. I foresee the day when there will be hard limits, but everytime I talk with the medicaid caseworkers, they still assure me they are not denying coverage to Porsche owners.  Or fix your roof, and add on a gameroom. This will not penalize you. If you are married, there are special exemptions for your spouse as well. It is tricky, but there are ways to let your spouse (assuming they do not need to qualify) to retain significant assets and income. This is high-level stuff, so talk to an attorney.

Ok, we are ready to apply. You have reduced your income and assets. You get qualified. You can rest soundly knowing that your Porsche and your house will go to the kids. Wrong.

On March 1, 2005, Texas enacted the Medicaid Estate Recovery Program, or MERP. Read more about it here. What this means is that if you die and Medicaid had to pay your bills, they are going to bill your estate. If you have more than $10,000 in your estate, they can make a claim. What's left? That's right, your house. And Porsche. They got on you the back end. There is a way around this, for now.

In the past, you were limited to gifting your house and car away, or placing them in a special trust. Now, the Department of Health and Human Services has officially recognized a special type of deed called a "Ladybird Deed," or more commonly an Enhanced Life Estate Deed. Allegedly named after the former first lady (debatable), the enhanced life estate deed is essentially a Payable on Death designation for your home similar to what you can use on a bank account. You keep everything like it is: you live there, you own it, you can sell it, you can swap it, but if and when you die, it goes to someone else.

Why? If the house is not in your name anymore, and it is not, as the LadyBird Deed transferred it at the second of your death, it is not in your estate. IF it is not in your estate, then the Texas MERP program cannot go after it to pay your debts. There is a similar process for your vehicle as well. Now you keep what was yours.

Your estate will still likely get a letter from MERP, but you just kindly write them back and tell them there is not anything there. Sorry, MERP.

Take away:

Medicaid and Medicare can be good things. They can help you when you need it. They are not for everyone, and they were not designed to be. It can be difficult to qualify for Medicaid, but it is doable. There are also ways to qualify without spending yourself under the poverty line. This, however, is difficult, so get the best help you can. It is money well spent.  


Supreme Court Rules on Obamacare.

What happened: Today, in a 5-4 ruling, the Supreme Court upheld the Affordable Care Act (also known as "Obamacare," as the President was the champion behind a nationalized healthcare plan).

How they did it: Chief Justice John Roberts was the deciding swing vote. Normally a conservative, he authored the opinion and sided with the traditional liberals on the court (Ginsburg, Breyer, Kagan, and Sotomayor) in calling the law a valid use of the taxing power of Congress (Art. 1, Sec. 8, clause 1), and not an abuse of the commerce clause  (Art 1. Sec. 8, clause 3) of the constitution. The traditional conservatives (Kennedy, Scalia, Thomas, and Alito) dissented, not buying the tax argument, saying the majority essentially re-wrote the law in order to uphold it.

The key language in the 193 page opinion, found here, on page 44:

"The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness. "

What this means: The nuts and bolts of the law are: If you don't have healthcare, you better get it. We (the government) will help, by expanding federal programs like Medicare and Medicaid,  and trying to make private healthcare cheaper. If you don't want to or don't get insurance, you have to pay a fine/tax.

What this really means: Great question. Its up to you, America. Re-elect the President, and it will likely stand. Romney has already said he will repeal it, before today and again, today. The states, who likely have final say, have been very mixed in their reactions up to now, with some already providing their own versions of the plan (like California and Colorado), and others violently opposed to it (like Texas.)

Here at home, the numbers are (according to the AP) 25% of Texans are uninsured, which translates to roughly 6.2 million folks. Texas has not implemented an insurance exchange, which is the general precursor to implementing the program, and governor Perry, not surprisingly, is opposed, claiming Texas can "deliver health care more efficiently, more effectively and cheaper than the federal government."

My Take: I get the tax argument, sort of, but as the opponents of the law have argued, this really is a commerce issue, and it allows the legislature to force the people into buying a product. This product is healthcare, but it could also be broccoli. Judge Roger Vinson of the U.S. District Court for the Northern District of Florida, who, on January 31, 2011, ruled that ObamaCare was unconstitutional, argued that if Congress can find good reasons to make us buy health insurance, it can find good reasons to make us “buy and consume broccoli at regular intervals, not only because the required purchases will positively impact interstate commerce, but also because people who eat healthier tend to be healthier, and are thus more productive and put less of a strain on the health care system.” This is why they argued it as a tax.

Starting to make sense? I don't envision a nation of mandatory broccoli purchases, so this is a bit far-fetched, but it is a concern. On the flip side, I am not opposed to healthcare for all, but at a time of unprecedented national debt levels and in the midst of a recession (I'm not buying the "we are recovering" arguments, just yet) I do not know where the money to pay for it will come from, and I certainly don't want to pay for it myself.

Another way to look at it is the court punted: they didn't say if it was good or bad, they just called it a tax, and indirectly asked the American people to decide if they wanted the law based on who they elect in November. Will more insured people make insurance cheaper? Will expanding prescription coverage for medicare users make insurance cheaper? Will not being able to deny coverage for pre-existing conditions make insurance cheaper? I don't really see how, but if you fall into any of these categories, its a win for you.

As an elder law/Medicaid attorney, I guess it gives me the opportunity for a few more clients. If you have elderly family members who do not have healthcare coverage, its time to start talking and thinking about their long-term care. Talk to someone who can help them take advantage of the programs that are out there, and the new ones that today's ruling (might) create.


Common Carriers, Eminent Domain, and Pipelines

In Texas, we have pipelines. Lots of them.  Normally, the process works like this to put them in the ground:

Big Company wants to lay a pipe. They come ask your permission, and offer to pay you for your trouble. You can accept, haggle, or say no. However, no doesn't always mean the company will take no for an answer.

Enter eminent domain. Eminent domain is the power of the government to buy your land from you, even if you say no. The best examples are highways, railroads, and utilities, like pipelines. Is it "fair?" Sometimes no, but we all like highways, railroads, and utilities, so we deal with it as a society. And normally, there are appeals processes and ways to make sure you get what you are due.

Normally, it is difficult for a private company to be awarded this power. It is usually reserved to the federal government, states, and municipalities. And pipeline companies. 


The first successful challenge of a pipeline companies unfettered right to claim "common carrier" status is  Texas Rice Land Partners Ltd. v. Denbury Green Pipeline-Texas LLC (No. 09-0901). Until recently, all a pipeline company had to do was check a box on a form, and they could condemn your land.  Some pipelines are legitimately used for a public purpose, or as "common carriers" defined per the Texas Natural Resources Code (Section 111.002(6)) as a company that “owns, operates, or manages, wholly or partially, pipelines for the transportation...to or for the public for hire...” This is fine.  However, other companies have used and abused this process when it was convenient for them. 


The tricky part is that the pipeline in the case was a CO2 pipe. The Texas oil and gas industry tried to get the case re-heard to clarify the perceived "bad law," in their favor but that attempt was denied. Will the ruling apply to other types of pipelines? The ruling itself makes reference to an oil and gas pipeline in a hypothetical. I think it is clear that the Supreme Court meant "all" pipelines, but it will probably require more litigation to hash that out. 


I think this is the correct ruling. I've tried to tangle with the Texas Railroad Commission before (the entity that approves pipeline paperwork), and, although helpful, they are simple a ministerial agency, not an investigative one. The Denbury case provides landowners a review process that was simply not available before. 


What will this mean? Some are already challenging the Keystone XL pipeline relying on the Denbury decision. For others, maybe your family farm or backyard is in the path of a proposed pipeline. If you or someone you know is dealing with a pipeline company who wishes to cross your land, consult an attorney who knows the law and how to protect your interests. 


I've worked for a pipeline company, and I've negotiated against one. There is a middle ground to be had, that is fair to all parties. The Denbury case helps the landowner get there a little easier. 







Tax incentives for Zombies

In light of the alleged LSD overdose/Hannibal Lecter/Miami Zombie attack, it is time to talk seriously about the undead.

As any good boy scout will tell you, the motto is "Be Prepared." After I read McCarthy's "The Road," I started thinking a little harder about the "what ifs."  While some people take this to a whole new level, millions are being spent on the fascination with the apocalypse, zombies, killing zombies, societal breakdowns, and just about any other scenario where you are going to need to run and hide and fight for your life.  

New to the subject? Here is a decent primer video on the basics of the zombie fascination.

If you haven't seen zombieland, do. It is well written, funny, and has Woody Harrelson at his finest. I also love the Resident Evil movies, but they are not necessarily for the casual fan.  I digress.

 Zombies have become the most sensationalized of scenarios for when society breaks down, lawlessness ensues, and it will be every-person-for-themselves in a post-apocalyptic wasteland. A dose of the supernatural never hurts, either.

This is not, however, a zombie blog, it is a legal and tax blog.


Enter Adam Chodorow , faculty at Arizona State University, and his recent article DEATH AND TAXES…AND ZOMBIES. If you have the time, read it. It is well written, thoughtful, and entertaining scholarship. He blends everything from The Walking Dead to the estate tax to Harry Potter, with a dose of Weekend at Bernies. The Bible and The Princess Bride even makes an appearance in the footnotes. The article discusses topics such as the definition of death, what qualifies, and how various taxes apply to, well, zombies and their variants. This is what all law review articles should strive to be.

One of my favorite passages:

"For instance, if someone who becomes a zombie is considered not dead (as opposed to undead) for estate and income tax purposes, neither the estate tax nor the basis reset would
be triggered. We would be in a situation similar to the one Congress negotiated as part of the Bush tax cuts, which relaxed the basis reset rules in conjunction with eliminating the estate tax.
Alternately, both the estate tax and basis reset could kick in only when a person’s zombie was dispatched. Were this the rule, people might have incentives to become zombies to delay the application of the estate tax."

Pure gold.

Kidding aside, my take away is that with ever changing definitions of life, death, function, and capacity, planning for the unexpected cannot be taken lightly. If you have a will that said "I leave everything to my family," that you wrote in 1984, does "family" mean the same thing to you now? Definitions change. Make sure you change with the times.

Just like planning for the apocalypse, every detail counts. If you have not made a plan, do it. If you have a plan, review it, and make sure it is up to date.

Remember rule #31, always check the back seat. Be careful out there.



Update: Zombies attacked colonial Williamsburg over the weekend. This is getting silly.


The free lunch seminar scam

Let's face it: if we keep living, we are going to get old. Maybe you are already old. 


There is a growing class of predators who, instead of working and making money, look to those who have worked their whole lives and maybe saved a little up for their golden years. These people are some of the lowest of the low, and they really make me sick. And it happens every day. 


Enter the free lunch seminar. Targeting those of us who may be objectively classified as "old" and often held at your community's finest all-you-can-eat buffet, swindlers and con-men have been peddling unnecessary and often useless "products" for years. 


Companies now are claiming they are "estate planners" and "retirement specialists," and can prevent you from the costs of expensive lawyers, probate, medicaid recovery, etc.  They will try and sell you annuities. They might try and sell you life insurance or other insurance products. See a theme here? 


Much like the ongoing legalzoom travesty, I see many unnecessary "living trusts" sold at a lunch seminar or on a front porch. Next, the same people who paid these guys in order to not pay a high priced lawyer to have their affairs taken care of, pay a lawyer to fix this mess they bought into from the con-man. 


Here is the basic pitch: 


Either on your porch or at the seminar, the "salesman" tells you how you are going to lose all  your property because of future taxes, medical bills, or attorney's fees. To "save" you and have something to leave to your heirs, you need a living trust. They sell you a couple pieces of paper, that may or not be a trust, and convince you to transfer all your stuff (your house, cars, land, money, EVERYTHING) into that trust. They tell you it is safe, and you are protected. They might say "you have access to a lawyer for follow up." 


In a recent CLE lecture, the statistics that I do not have any basis for were, on average, 50% of these seminars openly distribute false information, and 13% openly perform fraudulent transactions. The same lecture told of the two-hour training that is all these "salesmen" have taken. Two key points:
1.     “treat them as if they are blind 12 year olds,” and 
2.      “scare them by telling them you can save their life savings from nursing homes and Medicaid seizures”


This is not how I want to be treated, or how anyone should be treated. Think of these the same as a telemarketer who is trying to sell you, well anything. Skeptical? You should be. Why are people not more skeptical of someone who buys them lunch?


People are taking notice, however. Several states have enacted legislation providing harsher penalties for taking advantage of the elderly. I'm not the first to write about this, and I won't be the last. 


The take away:

  • -Living Trusts are garbage for all but 5% of folks. You probably  don't need one, and it absolutely will not save you money.
    • -When placing assets in trust, to have any real benefits, it has to be irrevocable, meaning you DO NOT have control over it anymore. Is this what you really want?
    • -Placing your house in trust can cause gift tax consequences, and you can forfeit a step-up in basis that you would otherwise get upon your death if not executed properly. 
    • -Most do not help you qualify for medicaid and can disqualify you for VA benefits.
    • -Trusts pay much higher taxes than individuals. 
    • -If you have income producing assets, you likely don't want them in a trust. 
  • -Annuities are usually a bad bet. If you're 75, you have to live until you are 110 to see any benefit.
  • -There is no such thing as a free lunch. Be wary. 







Texas Comptroller Announces Business Tax Amnesty

Have back or delinquent business taxes? Fines and interest mounting up?

 Don't worry about it. You are about to get a free pass.

The Texas Comptrollers office has just announced a Business Tax Amnesty program, where by you can have your ledger marked clean by filing your non/under/incorrectly reported return, but you only have the window from June 12 through August 17, 2012 to do it.

Not a bad deal, right?

The amnesty is good for any thing the Comptroller assesses, except property tax, PUC Commission Gross Receipts Assessments, Sports/Community Venue tax, and taxes under audit or where a settlement has already been done.
But wait, why are they doing this?

A couple reasons. They did it last in 2007, and raised about $100 million in unpaid taxes. Not a bad deal for them.

Ok, is it too good to be true?

Not really. If you have back taxes or have under reported, it can put you out of business. The fact your can waive 100% of penalties and interest is really remarkable, and you shouldn't let this chance get away as it might not come back again for 5 years.

So, what's the catch?

The only downside I see is that if you tell on yourself for not/under reporting, without a good excuse, this might increase your likelihood of future audit. That's all I can really see.

To see if this is right for you, contact your accountant or a business attorney, but do it quickly.  


More LegalZoom fun.

Get your will on the internet! Don't pay overpriced lawyers! Trust me! I defended OJ!!!

Lets take a snippet from a recently produced LegalZoom Will. And I quote:



"A. Appointment of my Personal Representative. I appoint _____________ as Executor of my estate. It is my intention, with clear knowledge of the consequences, that under no circumstances shall there be any independent administration of my estate." (emphasis added)



Let's think about this. You write a will, appoint an executor, but you do not want an independent administration. Why, ever, would this make sense? The whole point of having a will and naming an executor is FOR an independent, or un-court-supervised (read, CHEAPER) administration.

Before I get ahead of myself, yes, you can say whatever you want in a will. Yes, section 145 subparagraph O of the Texas probate code says:

 (o)  Notwithstanding anything to the contrary in this
section, a person capable of making a will may provide in his will
that no independent administration of his estate may be allowed.  In
such case, his estate, if administered, shall be administered and
settled under the direction of the county court as other estates are
required to be settled.


What that means is that you can request a court-supervised, or "dependent" administration. Always an option. This can be useful in circumstances if you have Hatfield vs. McCoy type heirs, or if you have large debts and creditors, that can often be wiped out through the dependent administration process. But who knows this? Not many. Certainly not legal zoom consumers.

Kudos to legal zoom to being extensive enough in including this as an option. Shame on legalzoom for including this as an option that sounds like a good thing, without explaining that dependent administrations are more expensive, time consuming, and generally unadvisable.

Shame on me, for not inventing LegalZoom, making a better product, and reaping the ungodly profits. I will, however, continue to pick up the pieces of rubble from the chaos LegalZoom leaves behind.


Lottery Fever, and how to fix the IRS

Have you bought your ticket yet?!!?!

If I had a dime for every time I'd heard that in the last week or so, I'd have several dozen dimes.

In case you have not interacted with common folk or watched news media, the mega millions multistate lottery has risen to an all time world record amount of $540 million dollars, at current press time. This number will likely increase as well. Everyone is talking about it.

Everyone has advice. From winning strategies, to personal self-image advice, to investments once you hit it big. I have a deal going with my brother, my buddy, my other buddy, and one guy I don't even like that much. But in reality, the lottery is what it has always been. A tax on the poor, dumb, and stupid, and I admittedly throw myself into this group.

Or is it? So what if it is more likely that you will be struck by lightning 50 times than hit the jackpot. Someone has to win it, right? When I spend that $1, the next 20 minutes I look at the numbers, and wonder, what if? What would I do? What would I buy? Who would I help? Would it change me? That is worth $1 to me. It really is.

But there is something bigger here. People I know that don't have much money are spending serious cash on this silly game. I know, because they tell me.  Why? For the thrill of the game. The chance at victory. The chance of beating someone, getting a good deal, and the  chance to get rich quick. Most folks would risk it all just for a silly thing called hope.

More powerful than fear, hope is what drives this train. Which brings me to my point.

According to one report, underreporting of taxes costs the IRS some $350 BILLION a year, last calculated in 2005. That's a lot more than $540 million. According to the IRS, there were about 144 million tax returns filled in the US in 2009, roughly a million gift/estate/excise taxes combined, 30 million employment returns, and 2.5 million corporate returns.

That's a lot of players. What if you made it a game? What if you made it a lottery style game? For every valid, non-fraudulent tax return filled, you get an entry into the game. For every year you don't get audited, you get an entry. For every gift tax return, you get an entry, and so on.

Tweak the rules to have the most interest and gain the most revenue. Tie it into the extra returns generated. Then, have a nationally televised drawing. Let the President, or one of the Kardashians do it. Make it a spectacle. Do it at the Oscars, or during the State of the Union. Do it bi-annually, quarterly, whatever. Have 50 winners. I just don't see how this plan doesn't only increase compliance, but add billions to the treasury every year.

We have national budget shortfalls everywhere. If lawmakers are still going to prevent para-mutual betting, sports betting, and casinos for whatever moral or political reason, this is a much easier pill to swallow. Give the people some hope. Make it a game. People love games,  and it gives them hope.

Have you filled out your tax return yet?!?! I can just see the fever sweeping the nation.


ADDENDUM: I'm hoping this is my last ever post. If you do not hear from me again, it is most likely because I have either won the mega millions or left this world for the next.

If you, or a loved one, or anyone you might know, happens to win the mega millions or any other lottery like prize, call a tax attorney before you do anything else. I can recommend a few. They can, and will, save you millions if they know what they are doing.

EDIT, 4/17/2012: I did not win.


Lawyer Referral Services, good or bad?

I practice in a small firm. I like that, and I choose to be here. I have had chances to go to "biglaw," (the commonly used term for big-city, big-dollar and big-number of attorney lawfirms)  but I chose then and will continue to  stay in "smalllaw" because I have not found a good enough reason($) to deal with all that comes with the aforementioned "biglaw."


However, there are trade-offs for everything. Here in smalllaw land, new clients are generated by word of mouth, family, and friends. And google. And lawyers.com. And a host of companies who, for the low fee of $500/month, promise to get YOUR name out there. All well and good.


Upon review of one nationally prominent unnamed legal referral service, I saw that my firm was paying an average of $400/month for one specific listing on a website. It generated, on average, 2 calls to the firm per month over the past 18 months. These calls led to the grand total 0 clients. Not a tough decision here to cut that expense.


The harsh reality is that in today's world, you still generally have to advertise. I wish lawyer ads were illegal, but anyone who has driven in a major city or sat at a bus stop will tell you that is not the case. The old adage used to be the lawyer on the back of the phone book got 80% of the calls. The next guy got 18%, then everyone else split up the scraps. The same is generally true of google and other search engines today. But, to be that guy, you have to pay. If there are results, great. It is a worthwhile investment. If not...


I've long wanted to start my own lawyer referral website, thinking I could just sit back and watch the advertising dollars add up. Turns out this requires a lot of work, so it is not in place yet. Until then, I am always looking for ways to generate new clients, without paying $400/month.


Enter today. While flipping through my February edition of the "Texas Bar Journal," the publication of the entity that I paid to give me a test so I could be a lawyer, then pay annually to stay a lawyer, then pay to teach me  "continuing legal education" courses that they also require to stay a lawyer, I see a page that looks like this:


Oh great, another one. But I read on. This service is sponsored by the State Bar of Texas. Interesting:  the club I joined, that should be advocating for me, that I pay to belong to. The article talks about how they can refer new clients, build your practice, etc. All good. Then the part hits me: $125/ year in fees, and if you get a case that generates more than $500, 10% goes back to the lawyer referral service. I'm sorry, what?


A referral fee that goes back to not just the "referral service," but the State Bar of Texas? Is that legal? So I did some checking.


Rule 703(b) of the Texas Disciplinary Rules of Professional Conduct requires:



(b) A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed
to practice law for soliciting prospective clients for, or referring clients or prospective clients to,
any lawyer or firm, except that a lawyer may pay reasonable fees for advertising and public
relations services rendered in accordance with this Rule and may pay the usual charges of a
lawyer referral service that meets the requirements of Occupational Code Title 5, Subtitle B,
Chapter 952. Full text available
here.

Makes the above sound fishy, right? Referral fees are, subject to a few requirements, very legal and ok. They allow a lawyer who is over their head to get some help, share the love, and still get paid. All good things. However, I was always under the impression referral fees to a non-attorney were very not ok. Is that not what is going on here? And by the STATE BAR of TEXAS, who enforces and makes those same rules?

I also checked the Occupational Code, Chapter 952. See it here. Guess what it says?

Sec. 952.051. RULES; ENFORCEMENT.
(a) The state bar shall adopt reasonable rules subject to the approval of the supreme court to administer this chapter.
(b) The state bar may enforce this chapter and the rules adopted under this chapter.

 Seems like The State Bar has this one covered from both ends. The state bar sets the rules, fees, and guidelines. The pertinent rules are:


Sec. 952.151. NOTICE REQUIREMENT. (a) A lawyer referral service shall include the following statement in any advertising or other promotional effort: "This service is certified as a lawyer referral service as required by the State of Texas under Chapter 952, Occupations Code."


I don't see that anywhere on this ad.


Sec. 952.152. LAWYER PARTICIPATION. A lawyer who is licensed and in good standing in this state and who maintains an office in the geographical area served by a lawyer referral service may receive referrals of potential clients from the service if the lawyer:
(1) complies with Section 952.155; and
(2) pays a reasonable registration and membership fee not to exceed the amount set by state bar rules.


If I hit a million dollar case, is $100k reasonable? Guess who decides? The state bar.


Sec. 952.155. LIMITATIONS ON CLIENT FEES. (a) A lawyer may not charge a potential client referred to the lawyer by a referral service an amount that exceeds the total cost the client would have been required to pay, including legal fees and expenses, if a referral service had not referred the client.
(b) The combined amounts of any fee charged to a potential client by the lawyer or the referral service may not exceed $20 for the first 30 minutes of the initial office visit with the lawyer.
(c) An agreement between a lawyer and a referral service to eliminate or restrict the fee for the first 30 minutes of an initial office visit with the lawyer does not violate any statute or rule, including Chapter 15, Business & Commerce Code.
(d) A fee charged under Subsection (b) may be used only to pay:
(1) the reasonable operating expenses of the referral service; or
(2) the expenses of a public service program, including a pro bono publico legal program.


This all seems fine, but they way I read B and D, is that fees that fund this program are the $20 pops. That's it. No mention of a percent recovery and the purpose of those funds anywhere.


The more I look, the more of these type outfits there are out there. There are many, nationwide. Most that I have seen thus far have the deal where you pay to join,  you pay $20 for the consult,  and that's it. No kickback referral fee. However, some others require a percentage fee. Wisconsin has one. The City of Houston has one too, but they claim to be a non-profit. They take 15%.


The ABA has actually issued rules on referral services, which can be found here.


The one that I'm interested in is this one:


Rule IX

-- A qualified service may, in addition to any referral fee, charge a fee calculated as a percentage of legal fees earned by any lawyer panelist to whom the service has referred a matter. The income from any such percentage fee shall be used only to pay the reasonable operating expenses of the service and to fund public service activities of the service or its sponsoring organization, including the delivery of pro bono legal services.




Maybe Texas decided it was ok. However, I cannot find a rule that says it is, and Sec. 952.155 of the Occupational code seems to say otherwise, even though the Bar regulates both.  Maybe the 10% percent fee goes to legal aid, or some other good cause. But I cannot find a place that says where the money goes.  The ABA also has a list of lawyer referral services in Texas, or LRIS services, here. Some have the ABA seal of approval. The Texas State Bar LRIS program does not. I wonder why?


I am sure (really, I just hope) that there is a great, clear, explanation for this that I have totally missed. I am sure (really, I just hope) that there is some fine print I missed. I am sure (really, I just hope) that my State Bar, the group I swore allegiance to, is not trying to squeeze more money out of me and my fellow attorneys in what are tough economic times by deceptive means.


This thing has been around since 1972. I can't be the first person to ask these questions.