Most of our prospective, and some of our current, clients know what estate planning is and have a vague familiarity with the estate planning process. Few of our clients have a real appreciation of the estate planning process because they never recognized who is who and what role each person plays in the process.
Once a decision has been made to engage in formal estate planning, the decision essentially boils down to the following choices:
Will-Based Estate Plans: A will-based estate plan uses a will to contain all of the instructions that you want to apply to your property after your death. In effect, a will is dormant until death at which time it springs into being and a court supervised procedure, termed “probate,” begins and ensures that your wishes are carried out. Since you must go through probate this can be a very costly process and can often take more than a year to completely distribute your property. The terms of a will progress through naming guardians for minor children, payment of last expenses, any specific bequests, the ultimate disposition of property, including changing the title of the property from the decedent to the ultimate beneficiaries, and the powers and responsibilities of the Executor.
Trust-Based Estate Plans: A trust based estate plan uses a document termed a revocable trust to contain all of the instructions you want to apply to your property at death. Unlike a will, a living trust springs to life upon execution. It is a real legal entity with rights and responsibilities of its own. The operations of the trust are carried out by Trustees, rather than executors. Unlike a will, property is funded, title is transferred from your own name to yourself as Trustee of your revocable trust. The trust becomes the legal owner of the property for all purposes. When death occurs, the trust is already the owner, and does not need to go to the probate court for supervision. This considerably shortens the time to completely distribute your estate.
If you look at the operative provisions of a trust, you will see that they are very similar to those included in a will. This is particularly true for the portions that deal with the payment of expenses, dispositions of specific bequests, ultimate disposition of the property and the powers and responsibilities of the successor Trustee or Trustees.
Since only an attorney can draft a trust or a will, an attorney will be involved at some point in time in the process. It takes an experienced estate planning attorney to understand the many circumstances when tax law, family matters, Medicaid issues and other matters interact in an estate plan, and if not planned accordingly, can frustrate your wishes. Unfortunately, clients often view the attorney’s role as ending when the documents are signed. This is actually the furthest thing from the truth. Laws and family situations are constantly changing. What may be the law one year may actually be impermissible the next year.
A good estate planning attorney will often demand that other key players be involved in the process at various points. For example, your accountant, while usually viewed as the person who prepares the accountings and income tax filings, is also very effective in providing the attorney with a unique insight into your business and family dynamics. Your accountant is probably the most familiar to you because of the annual income tax preparation and planning that is done by the CPA.
We will often bring in an insurance professional to ensure that any insurance you have is adequate and is performing in the way the policy was initially illustrated. Some clients need access to the cash value of their policy which may contraindicate the use of a life insurance trust. Few attorneys would know this if they did not take the time to speak with the client’s insurance agent prior to drafting the necessary documents. In addition, clients are often underinsured because they have not revisited their insurance needs despite major changes in their life. Since we, as attorneys, do not charge for life insurance and have no economic interest in the sale of life insurance products we act as an independent party reviewing any life insurance proposal. It has been our experience that many insurance agents recommend too little insurance for fear that they will be viewed as trying to make a sale instead of looking out for their client’s best interests.
Finally, financial planners play a vital role in any well crafted estate plan. Different trusts should be invested in different ways and what may be a good investment strategy for a revocable trust may be a bad strategy for a charitable remainder trust. We have found that a well-crafted plan falls apart when clear instructions have not been given and the “wrong” assets are held in the wrong trust.
In sum, a good estate planning attorney devotes a lot of time to speaking with the parties and making certain everyone is on the same page. Now that the players are known and their role is identified, you can understand why the planning process can take a long time and why good estate planners should remain involved in the plan even after the documents are signed and the plan funded. We have recently begun to offer new clients the option of having their documents become part of our maintenance plan for a small annual fee. Participants in this plan are extended a discount for any changes required by changes in the law. Next month we will discuss why estate planning should be more than just a will or a trust.