What's Wrong with Most Estate Plans?
Every day clients present themselves at the conference table to "plan their estate." Depending on the client and depending on the advisor, the scenario could look very different and produce completely different results. What differentiates a successful plan from one that fails to accomplish the client's goals can be the result of many factors. Most likely the cause relates to the fact that developing a good estate plan takes more time than most people are willing to devote to it.
As estate planning attorneys who also concentrate in elder law, it is not uncommon to have many clients who are confused about what they are asking us to do. They want lifetime planning to remove assets from exposure to the costs of long-term care, while at the same time they want to avoid probate and eliminate estate taxes. It may not be possible to implement a plan that can accomplish all of our clients' goals at the same time. A plan to remove assets from probate, for example, may not be necessary if all of the client's assets are spent before death, paying for skilled nursing services. Twelve thousand dollar annual exclusion gifts still have to be reported to the department of Social Services, even if the IRS gives them a pass.
So, the first thing we have to do is EDUCATE THE CLIENT.
Clients present themselves to us with varying degrees of sophistication regarding estate planning and asset protection. Many have old documents that need to be reviewed and almost all have discussed various techniques with friends at the senior center or have attended seminars on the subject. I find it helpful to explain the current state of their affairs and how assets would either be spent or transferred in the event of illness or death. Using a chart that displays ownership allows clients to see that assets are treated differently based on the type of investment and how it is titled. It is almost inevitable that no one has explained to them which of their assets will actually pass via the terms of their Last Will and Testament. Clients need to understand that the purchase of an annuity, instead of renewing a certificate of deposit, will change the flow of their estate plan. Therefore, it is imperative that the estate planning attorney thoroughly review each client's assets, including beneficiary designations, in order to develop any type of plan.
The process of determining what assets are owned by the client and how they are titled can be time consuming and difficult, but it is imperative that this be done before advice is given about planning. If the client or their representative are unable or unwilling to provide this information, the plan is destined to fail. Generalizations can be give, as an educational exercise, but specific planning cannot be done without a valid basis from which to start. Our firm requires the client to complete a detailed intake questionnaire to obtain the relevant information.
Unfortunately, clients invariably misrepresent the type or title of certain assets. To avoid unexpected results later on, supporting documentation should be obtained for each asset. Many people have done some "simple" planning of their own, such as adding another individual on the title of their bank account or bond. Transfer on Death accounts can now be established at banks and brokerage houses for assets that previously passed through probate in New York. Failure to uncover the true nature of each asset will result in frustration of the client's overall plan.
Therefore, every successful estate planner must first obtain updated and accurate asset information form the client.
The next step should logically be to DEFINE THE CLIENT'S OBJECTIVES AND EXPECTATIONS.
"I want to put the house in my kids' names."
"I want to avoid probate"
"I don't want the government to take all my money if I go into a nursing home."
Clearly, clients arrive with certain ideas about the plan that they want you to implement. It is the job of a professional to determine the most appropriate plan to achieve the client's planning goals. Individuals should expect an "estate examination" before a diagnosis can be made. I ask my clients if they would respect a doctor who puts a cast on a leg because he or she thinks it is broken, without taking an X-ray.
The only way to determine clients' objectives regarding their estate and long-term care plan is to listen to their story and to get to know them, both of which takes time. It will most likely take two meeting to review the client's current state of affairs and discuss possible plans. clients may not reveal certain important information, not only because they do not feel comfortable, but also because the attorney has not discussed enough about the plan for the client to realize what information is significant. Both of these impediments to complete disclosure can be eliminated by developing better communication with the client.
The client may say that they want a simple will and at the same time they don't want their assets to have to go through probate. Obviously, these clients need more education about asset transfers. There is also the client who wants to protect all of his or her assets but never wants to spend them or give them away. These kinds of misunderstandings on the part of clients can launch a very important discussion. The client may never have developed a vision of what their money should or can do for them or those they care about. It is short sighted to simply want to "hide" money for its own sake. Asking the right questions will help develop a picture of the clients real attitude and expectations about what they're asking for in an estate plan. The attorney should assist the client to develop a clear understanding of his objectives before proceeding with the plan.
In order to complete an effective estate plan, the attorney must WORK WITH THE CLIENT'S FINANCIAL CONSULTANT.
Estate planning attorneys have to review their clients' assets to create a plan. Some clients have been very active in their financial planning and may have a trusted advisor who helps them in the endeavor. However, many time clients have been "sold" a variety of investments and may not have a coordinated plan. For estate or long-term care plan, the attorney needs to understand how the assets will transfer at death or how they will be treated by government agencies in a Medicaid application process. To truly benefit the client, it is important to understand the underlying investment objectives and tax implications of altering an asset structure. For this, a sophisticated investment advisor should be consulted.
Developing relationships with qualified investment professionals is key to creating successful estate plans for our clients. If the client has a trusted advisor, this is a good opportunity to develop a new relationship or networking opportunity. In any event, it should not be left up to the client to coordinate the information between the investment advisor and attorney.
First, clients may not fully understand what we need them to do and, second, they should not be required to complete "our" work.
The more estate planning that attorneys engage in , the more familiar they become with asset types and investment scenarios. Although we do not offer investment advice, the attorney should be able to recognize problems within the asset structure of an estate. It is imperative that an attorney concentrating in the area be educated about financial planning and investments. We are retained to preserve and transfer the product of a lifetime of hard work and accumulation. Every client has a different pot of assets. That is part of what makes our job so interesting and difficult at the same time. By joining a professional financial planning organization, an attorney can continue to be educated in current investment planning techniques and at the same time develop professional relationships with local advisors.
A frequent defect in any estate plan is the failure to COMPLETE AND FUND THE PLAN.
Clients bring in beautifully bound, three-ring binders containing "everything" in their estate plans. Invariably, their assets have not been transferred to correctly fund the plan they thought they had. Here is where the client's lack of education in the rules of asset transfer and title becomes apparent. They may have re-titled their real property into the trust and then proceeded to purchase annuities and other investments outside of the terms of the original plan. Clients don't necessarily need to understand asset transfer rules if their advisor takes it upon him or herself to ensure that assets are correctly structured to fit the plan documents. The client or financial advisor must be advised to maintain contact with the estate planning attorney as investments change.
THERE HAS TO BE A PROFESSIONAL HERE SOMEWHERE.
Remember, the client is paying an attorney for professional advice. Years of experience with the planning issues described gives and estate planning attorney a better perspective and the ability to avoid or eliminate potential problems. The children of our clients will be experiencing the ramifications of the plan we implement today. The best way to generate goodwill and expand a planning practice is through good "generation planning." Explain to the clients the possible problems that can result when antagonistic siblings jointly own real property. Tell them why there are practical complications of appointing three co-attorneys-in-fact. Beyond having the technical expertise to implement the correct legal requirements for a plan, a good attorney will have asked the right questions and have enough information to personalize the plan in light of the specific client situation. remember, this creative involvement with the client is the reason we chose our profession. Challenge the client to explain his or her "money goals" and open-up the dialogue. If an attorney becomes more interested in the outcome of a client's plan, it is more likely to be implemented correctly.
