Wednesday, July 3, 2013

Estate Planning and the Value Proposition

About once a week I’ll receive a call that goes something like this:  “Hello Mr. Shapiro, my name is Mary Jones.  I need to update my will -- it’s really simple. I know exactly what I want to do, so can I just give you the information on the phone and then come in to sign?”

Such a request underscores a serious misconception about what constitutes an effective estate plan, as well as the appropriate role of an estate planning attorney.  Some people expect their attorney to serve merely as a “scrivener” who records the client’s dispositive wishes and transforms that information into a legally effective will.  The result of that scenario will be a “word processed” will that, while satisfying the legal requirements for creation of a valid will, in substance is no different than what the client could have done for themselves using a do-it-yourself online website.  

But doing such a “fill in the blanks” estate plan provides the client with a false expectation that the “estate plan” (I use that term loosely) in fact assures the client that their goals will be addressed. Almost inevitably the client’s true objectives will be frustrated, although the client will never know it since the ultimate success or failure of the plan will not be known until after their death – and sometimes not for many years after their death.

For example, married couples routinely own assets as joint tenants with rights of survivorship.  It is simple to set up, it gives each spouse comfort that they have “skin in the game,” and title automatically passes to the surviving owner upon the first death without the need to go through probate.  

But joint ownership is fraught with pitfalls.  The assets are only truly owned by the surviving joint tenant, who is free to dispose of the assets as he or she desires after the first owner’s death.  Perhaps the surviving spouse remarries and then dies before the new spouse.  Even if the deceased spouse has a will or trust leaving assets solely to the children of the first marriage, in the absence of a prenuptial agreement, the second spouse can assert spousal rights to at least one-third of the assets of the deceased spouse.  Even if there is no remarriage, the jointly owned assets may be exposed to estate taxes upon the second spouse’s death, will likely be subject to probate, will not be Medicaid protected, and will likely be exposed to the surviving spouse’s creditors.

Proper estate planning requires that an attorney well-versed in current estate planning and elder law information and techniques gather a significant amount of financial and personal information about the client, their family, and other “key people” in the client’s life. Only after the attorney has learned about the family, their assets, and their planning objectives can the attorney work with the family to craft a customized estate plan that will address all of the client’s planning goals.

A significant part of the attorney’s role is to educate the client about the myriad planning possibilities, and to challenge the client’s assumptions.  For example, most people intuitively assume that the “appropriate” way to leave an inheritance to an adult child is to simply leave it to them as an outright distribution, rather, than in a trust for the child.  People are wary of “controlling from the grave,” and they incorrectly believe that leaving a child’s inheritance in trust necessarily means that the child will not have any control of, or access to, their inheritance.  But after they have been informed that they can establish a trust for a child’s inheritance that will allow the adult child to have access to the trust assets as trustee while the same time shielding the assets from the child’s creditors, a divorcing spouse, or the dissipation of assets as a result of a catastrophic illness or injury, clients almost always choose to leave the children’s inheritance in some form of a trust.

It is important to keep in mind that hiring an estate planning attorney should not be treated in the same manner as if you are purchasing, say, an appliance.  Seeking the "cheapest" professional without focusing on the value you will (or won't) receive for your money is likely to lead to disappointment - if not for you, then certainly for your heirs when they need to settle your estate and are left with chaos and the resulting additional costs resulting from a "word processing" based estate plan that provides no correlation between the planning documents and title to the client's assets.