What to Think About When Approaching Your Estate Planner...

As I sit here, I can't remember one person who really wants to hire an attorney (that is, ignoring the handful of truly litigious plaintiffs I have run across over the 20+ years of my practice).

Most people don't want to hire an attorney. In fact, most probably dread hiring an attorney to plan their estate.

Thus, if you give me a call and tell me that you will think about hiring me, and you say that "I'll call you back in a few days" I recognize that you may not call back. In fact, I am sometimes surprised when potential clients really do call back. The fact is that going to an estate planner is difficult. Most people who hire an attorney to draft their wills and trusts do so out of a feeling of obligation. Facing your mortality is truly difficult. But then...




...so is facing the paperwork.

If you come to me, I might ask you to search your files, collect deeds, and to give me an idea concerning your finances. In fact, I will give you a questionnaire asking you to detail your investments, etc. While I will do your estate plan without all of the detailed information, to do a complete job, I should know the details.

I may also ask you tough questions about your family. I might ask you to separate your family into classifications, like "who is dependable?" and "who isn't?"

I'll throw you a lot of questions, like:

"Who would be an ideal trustee?" "Is she reliable?"

"Who would you trust to raise your children should you pass away?" "He is single and has never had any children -- is he really the best choice?"

While I am an attorney -- I'm still only the attorney. Obviously I don't know your family in the same way that you do. However, I might be forced to ask you questions about your family, your life and illness, and how you perceive the people who are the closest to you. It might sometimes seem that I am being nosy -- but that's far from my mind. The questions are being asked to make you think, and to provide the best service possible.

At the end of the day, however, I have found that my clients experience a near-universal reaction of relief. I often hear them exclaim that they can "now rest easy." This is especially true because -- I believe -- the prime motivation to seek the advice of an estate planning attorney is a sense of loyalty and obligation to others. I have never seen a circumstance where estate planning was done lightly, and I have never seen a a self centered person only living for himself or herself, with an "eat, drink and be merry for tomorrow we will die" worldview, run to an estate planning attorney for an easy afternoon of frolic.

Therefore, relax into the situation, and realize that by doing this you are doing yourself -- and those closest to you -- a tremendous service.

(Graphic hat-tip: www.theispot.com)

The Estate Planning Opportunity

I have heard the refrain so frequently. The initial telephone conversation conversation goes something like this, after I answer the phone:

"Uh, hello. Can I help you?"

"Why, yes. I've never had a will. I have such a small, simple estate. Can you help me? I don't think that it would create any real trouble or effort on your part..."



The conference with the client is quite different, however. The new client might have a prior marriage, and kids from that marriage; there might be a long lost brother. One of my recent clients made an utter mess of the title to their home. Years ago, they entered into in a series of transfers, at one point giving their home (yes, their home!) to a family member. While they eventually recovered a 50% interest in the property, they had no idea what the state of title was on their property. When I first met with them, I did not understand that they were only giving me partial documentation -- not until after I prepared their trust, and was in the process of attempting to fund it.

An estate plan is rarely such an easy thing. Sometimes it is -- sometimes things go smoothly and there is little problem. However, more often than not, there is a glitch. And mind you that someone, sometime, will discover it and be forced to deal with it.

Actually, this is one of the side benefits of estate and financial planning. While we often think and say that we do not want to burden our children, planning one's estate gives us the opportunity to actually do something about it.

So, if you go to an attorney saying that your estate plan is "oh so very simple" -- do not be surprised if isn't so simple. Really, I hope it is simple. But it probably isn't.

Then, you can deal with the problems, and resolve them -- if not for yourself, then for your heirs.

Personal Thoughts and Reports...

I had the privilege of attending the San Gabriel Valley Chapter of the Financial Planning Association, today, to give a talk on defensive actions planners can take to minimize the risk of malpractice claims. My local FPA chapter consists of a fine group of professionals; I had a good time doing the presentation, and I hope that the members found it informative. Later on these pages, I may periodically discuss some of the subjects of my talk, which included a survey of fee-only planners, primarily under the umbrella of the Garrett Planning Network. The survey (which was not scientific and had 46 respondents) shows that nearly half of the respondents were not covered by E & O insurance.

On another front, today the California Court of Appeal issued a published decision in one of my cases, in my client's favor. The issue was what constitutes a "dismissal" for disability under the disability retirement provisions of the County Retirement Law of 1938, specifically interpreting California Government Code Section 31725. A slip opinion for Kelly v. County of Los Angeles can be found on the California Court of Appeal (District Two) website.

Upcoming Malpractice Avoidance Seminar

Next Wednesday on July 26, 2006, I will be presenting a seminar on malpractice avoidance by financial planners, entitled Judo for Financial Planners: Strategies for Avoiding Malpractice Claims, at the San Gabriel Valley Chapter of the Financial Planning Association.

Another Cogent Argument Against the "Death Tax"

Andrew Chamberlain, Gerald Prante and Patrick Fleenor of The Tax Foundation have prepared an excellent analysis advocating the elimination of the estate tax, entitled Death and Taxes: The Economics of the Federal Estate Tax.

(Hat tip: Wills, Trusts & Estate Prof. Blog)

Should I Use a Trust?

Frequently, clients assume that a trust is necessary. After all, there is so much (dis)information out there about estate planning. So the question: Is a trust really cost effective?

Usually.

There are many factors involved, but if you own real estate, or if you have a fairly substantial estate which would be subject to a probate proceeding, a trust may be cost effective if you (1) don't want to hand over a large amount of assets to an attorney, for the fees required to probate a will (2) don't want to hand over a substantial filing fee to the court, and (3) don't want to hand over large sums to pay for an executor or administrator. Also, an estate can take up to a year or more to close. Personally, I am aware of an estate which has been open for sixteen years (by the way -- I am not the attorney for that estate). That's a bit unusual; but it is not unheard of.

The cost of a probate estate is based upon the value of the assets involved. In California, real estate prices have risen substantially. Just a few weeks ago, I was driving in an area of Los Angeles which might have been called a "ghetto" at one time. Whereas even 5 years ago the houses were generally unpainted, unlandscaped and run-down, the neighborhood was turning around: Most had new paint and were being well taken care of. The value of these homes increased substantially over the past few years. It's amazing how private ownership of valuable property is an incentive for the owner to take care of it. But, I digress...

The attorney in a probate proceeding must generally obtain fees through the court, and the amount of fees are governed by statute. A private agreement for fees between attorney and client (if the fees would be in excess of what is allowed by statute) is unenforceable. Denton v. Smith, 101 Cal.App.2d 841 (1951).

Let's say that an estate is valued at $400,000 of probate assets in California. According to the schedule of fees and assuming that all fees are ordinary -- that there are no extraordinary fees involved -- the attorney fees would be in the amount of $11,000 under Probate Code Section 10810. If the executor charges an ordinary fee (and, ignoring the filing fee) the cost would increase by another $11,000 (under Probate Code Section 10800), for a whopping cost of $22,000. Add court allowed extraordinary fees and filing fees, and the amount goes up even more from there. Sometimes, families save on personal representative fees if a family member waives the fee. Still, the sticker-shock is there.


Although the value of an estate may be a factor in the amount of work involved in preparing the documents and funding a trust, the cost of preparing a trust is usually much less. Unlike a probate estate, the cost of preparing a trust is usually based upon the work involved in preparing the documents and funding the trust, rather than the value of the estate, per se. This is not to say that there are not other transaction costs involved with trusts. Generally (again, depending upon the complexity and purposes of the trust), there are costs in administering a trust, particularly after major events -- like the death of the first and second spouses. Even so, the overall cost is generally less.

There are advantages, however, to administering an estate -- court administration has its virtues. However, the costs are generally much less for trusts, which is one of the many reasons why they are so popular.

Update: Jennifer Sawday, Esq. at the California Estate Planning Practice Blog has just posted an informative outline of the probate process, and the California Probate Code attorney's fee schedule.

Estate Tax Redux

Things are looking dim for a Senate compromise on a permanent increase of the estate tax exemption, and a higher applicable exclusion amount exempt from tax. Given the possibility that Republicans may lose power or voting strength this November, raising the exclusion to -- say -- $5 million per individual decedent (instead of the current $2 million) might be the best which can be hoped for. Look for a vote in the next week, or two.

For many of you who do not follow the estate tax roller-coaster, the exclusion amount is set to increase until 2009, then expire in 2010, and then come down to pre-tax relief levels (about $1 million) in 2011.

My theory: this is a long shot in the Senate -- especially given the fact that this is an election year. The Dems have positioned themselves to be the anti-tax reduction party.

If the estate tax remains in it's current wacky state -- with the tax reduction set to "sunset" in 2011 -- don't look for financial and estate planners to shed any crocodile tears. Face it -- many advisors depend upon the insanity of the Internal Revenue Code to make a living...