Bar News - March 16, 2012
Elder, Estate Planning and Probate Law: Not-So-Common Estate Planning
By: William T. Whittenberg, Jr.
Itís a good time to be an estate planning attorney, that is, if you like change and uncertainty. Yet, in spite of the long-term legislative ambiguity, the current estate and gift tax ó coupled with extraordinarily low interest rates ó presents historic wealth transfer planning opportunities for clients. The current legislative environment invites simple and complex strategies alike. Properly designed and implemented, these strategies will save families a staggering amount of estate and gift taxes, not just for one generation but for several. In addition, even though it has little chance of becoming law, the budget President Obama recently submitted further highlights the urgency of implementing a plan this year.
For many of us estate tax attorneys, this is our wheel-house; it is second nature for us to create a plan that reduces or eliminates all estate tax and generation skipping transfer tax, perhaps forever. After all, who among us can resist a sexy sale of restricted limited partnership interest to a dynasty grantor trust, especially for a nine year installment note at 1. 12 percent? If thatís too risquť then how about a simple irrevocable asset protection trust for your spouse or perhaps one for each (beware the reciprocal trust doctrine!) fully utilizing both applicable credit amounts of $5,120,000 per person (until yearís end when it is slated to return to $1,000,000). This means $10,240,000 can be gifted into asset protection trusts that, when carefully crafted, will never be subject to estate or GST tax in the future, unless there is clawback, but that is a topic for a different day. Time for a cold shower.
Itís easy for us to let the proverbial tax tail wag the dog and miss the real reason our client came to us. The hard part for many attorneys is the soft side of estate planning, learning about the people, their dreams and aspirations for themselves and their loved ones and making the connection to their estate plans. Anyone who has actively practiced estate planning for more than 10 years has worked with a surviving spouse or child who was completely lost, adrift and overwhelmed by the duties ahead of them as executor or trustee, and it suddenly becomes clear that this is not what the client expected; in other words, the plan failed. I know, that is harshly worded, and I certainly do not mean the plan failed from a malpractice standpoint or that anything unusual happened in the planning process or the administration process. Perhaps the initial call from the client went something like:
Mr. Smith: Hi, attorney Jones, Iím John Smith and I would like a will. My situation is very straight forward and typical, Iím sure you have seen it hundreds of times so this will be a very simple thing for you.
Attorney: Sure Mr. Smith, let me ask you a few questions and I will draw it up for you.
Mr. Smith: Great, but can you make it quick I only have a few minutes.
Attorney: First, I need to know what you have for assets.
Mr. Smith: Not much given this economy and my divorce. I have a couple of bank accounts, a retirement plan, some life insurance and a condominium. Oh and some savings bonds my grandmother gave me, so not enough to worry about any tax issues. Iíve given this quite a bit of thought because I didnít want to waste your time and I have done a lot of reading about estate planning on the Internet and at the library.
Attorney: Ok great. Who you would like to appoint as executor and who do you want to receive your estate after you have passed away?
Mr. Smith: Iíd like my daughter Mary to be the executor; thatís the one who handles all the details, right?
Attorney: Yes, the executor handles the administrative details after someoneís death.
Mr. Smith: Iíd like everything sold and split between her and my son, John, Jr. equally. I told you it would be simple, again Iíve put a lot of time doing my homework and researching so I would not waste your time.
Attorney: Ok John, letís schedule a time to execute your will. Iíll send you a draft for you to review ahead of time.
Mr. Smith: Great, see you then.
Over the years Iíve had many conversations that very easily could have gone that way. When someone calls and says that they would like "a will" Iím tempted to follow up with, "Would you like fries with that"? (For the record, I have never have done so, but it is tempting). While most clients know what they would like to have happen, rarely does a client know how to get there. Otherwise they would be using a DIY program to create their own plan and not calling an attorney about it.
This is where we add value, to get a clear picture of what the client wants to have happen in the future. This takes time. We must demonstrate that clients can trust us, not only as a scrivener, but as a person. They need to know it is safe to share the dreams they have for their loved ones as well as difficulties posed by their personal situations. Many times clients have some very difficult issues within their family that should be revealed, even if it is emotionally difficult. After all what is the use of designing an elegantly crafted and intricate estate plan that saves $1,000,000 in estate taxes if the beneficiary who gets control of it has a gambling problem that everyone knows about but no one discusses.
Once we have this picture of the clientís personal situation we need to help the client see the future. Nothing mystical here. We know the sorts of things that tend to happen within families after the matriarch or patriarch dies; weíve seen it with our own clients. So while we could explain the rules to the client, the best way is to walk them through it and start with the practical and most basic mundane mechanics of how assets are retitled. I continue to be surprised by how challenging this task can be for even the most financially sophisticated clients.
Some clients wonít care about the process, but the vast majority of clients prefer that things go smoothly for their loved ones, that they avoid the probate court, that they are not overly burdened with administrative details, and that they pay as little tax as is possible. Only by asking the right type of questions, allowing our clients enough time to answer, and listening without our own agenda can we learn what is most important to them.
Estate planning is more than drafting wills, trusts and powers of attorney. It is more than analyzing asset values, asset types, ownership, providing estate and income tax projections and keeping up with the latest federal and state estate tax law changes. Without a doubt, effective estate planning must include those things but it begins with genuinely learning about our clients and about what is important to them and their vision of the future for themselves and their loved ones. We can then serve our clients by bridging the gap between the legal theory and the practical realities of life, creating a plan that puts the right people in the right place with the right powers so they can do the right things with it while protecting it for the right people.
|William T. Whittenberg
William T. Whittenberg, Jr. , is an attorney at Sheehan Phinney Bass + Green in Manchester. You can reach him at 603-627-8124 or at wwhittenberg@sheehan. com.